USD: PMI surveys signal global slowdown underway - MUFG

The negative impact of heightened policy uncertainty and fears over disruption from trade tariffs were evident in the latest PMI surveys released yesterday from the Europe and the US. The composite PMI readings for April dropped by 0.8 points to 50.1 in the euro-zone, by 3.3 points to 48.2 in the UK, and by 2.3 points to 51.2 in the US, MUFG's FX analyst Lee Hardman notes.

Fed rate cut bets face pushback as US inflation persists

"The broad-based deterioration in business confidence will reinforce expectations for a slowdown in global growth in Q2. It fits with the IMF's updated global economic projections that were released earlier this week. The IMF's reference forecasts for global growth were revised lower by a cumulative 0.8 percentage points for this year and next to 2.8% and 3.0% respectively. Despite the forecasted slowdown, the IMF still noted that global growth remains well above recession levels. The biggest downgrades for growth were for the Mexico, Canada, the US and China."

"The IMF expects US growth to slow to 1.8% (-0.9ppts lower) in 2025 and 1.7% (-0.4ppts lower) in 2026. It will create a more challenging backdrop for the Fed when setting monetary policy. The US rate market is currently pricing in around 83bps of Fed rate cuts by the end of this year with the next 25bps rate cut expected in June or July. However, with inflation set to rise further above the Fed's 2.0% target this year, it will likely require an even sharper slowdown for the US economy and loosening of labour market conditions for the Fed to meet those expectations."

"The weaker US dollar reflects in part the bigger expected negative impact on growth in the US compared to for other major economies. The IMF's forecasts for growth in the euro-zone were revised lower but more modestly by -0.2 percentage points for both 2025 and 2026. The US dollar could derive more support going forward if the US economy does not slow as much as feared making it harder for the Fed to cut rates as much as currently priced in."