Higher oil prices and geopolitical uncertainty have given the US Dollar only modest support. Resilient US equities and month-end flows have weighed on USD performance.
US equities have held up, while falls in the rest of the world’s stock markets have been limited. EUR/USD and other USD pairs are currently more sensitive to global equities than to oil prices or rate differentials.
Month-end flows are expected to drag on the Dollar due to US equity outperformance in April. If these flows fade in the coming days and Gulf negotiations do not show tangible progress, USD gains may increase.
High-beta commodity currencies such as the Australian Dollar and Canadian Dollar have been preferred. Attention is on consumer confidence data, while the approach to the FOMC decision and earnings from Alphabet, Microsoft, Amazon and Meta may keep volatility in USD pairs contained.
Even though high oil prices and global uncertainty should be creating a favorable environment for the dollar, it has found only limited support so far. We see this is because US equities continue to show remarkable resilience, with the S&P 500 recovering from its mid-month dip to post gains. The market is currently showing a higher sensitivity to global equities than it is to oil prices, which have remained elevated above $85 per barrel.
Another key reason for the dollar’s soft performance is the effect of month-end flows, which are acting as a drag. Given that US equities have outperformed their global counterparts this April, portfolio managers are likely selling dollars to rebalance their holdings. This is a technical pressure that is likely masking the dollar’s underlying fundamental strengths.
We expect the dollar’s gains to accelerate once these month-end flows roll off in the coming days. Derivative traders should be preparing for this potential shift by looking at positions that would benefit from a stronger dollar in May. Barring any tangible progress in geopolitical negotiations, the path of least resistance for the dollar appears to be higher.
We saw a similar pattern in the spring of 2025, when a strong stock market kept a lid on dollar gains for nearly a month before a sharp rally occurred. That period taught us that these equity-driven divergences do not last indefinitely. History suggests that once the temporary flows subside, the fundamental drivers tend to take over again.
For today, a cautious approach is best as markets await tomorrow’s FOMC decision and major tech earnings. The latest consumer confidence figures came in slightly lower than expected at 97.0, which may also keep trading in major currency pairs contained. This quiet period offers an opportunity to structure strategies for the potential volatility ahead.
