FX Monthly Update | May 2025

Economic Outlook and Summary

April delivered another body blow to global markets. President Trump’s April 2 announcement of a 10% tariff on imports from 60 countries caught many off guard, even those accustomed to his unpredictability. The move erased any lingering optimism for a soft landing and raised fresh concerns about global trade stability.

The fallout was swift. The U.S. Dollar Index (DXY) declined steadily through April, falling from 103.12 to 99.83 by month-end as investors sought safer havens. Gold responded immediately, surging to an all-time high of $3,500.33 on April 22 before easing slightly into month-end. U.S. equities took the hit. The S&P 500 dropped from 5700 to 4831 in the first week of April, clawing back some ground to finish at 5569

Bond markets were more decisive. The 10-year U.S. Treasury yield plunged to 3.86% at the start of the month, reflecting a surge in safe-haven demand ahead of the tariffs. Yields rallied to end April at 4.16%

Looking ahead, the focus in May will be on the market’s reaction to the full economic impact of the April 2 tariff announcement. Traders will be watching for signs of retaliation from affected countries and whether the U.S. administration introduces additional trade measures. U.S. inflation and labour market data will take on added importance as markets assess whether the Federal Reserve maintains its current policy stance or begins preparing for rate cuts. Equity and bond market volatility in April highlighted investor uncertainty, and any escalation in trade tensions could amplify risk aversion in May.

The USD and Federal Reserve

The US dollar came under broad pressure after Trump’s tariffs were implemented due to rising risks for a US recession.  Traders increased bets that the Fed would be forced to cut interest rates while ignoring an increase in unemployment. There was no shortage of talk about the end of greenback as the world’s reserve currency. However, there are no alternatives either.

President Trump got into the act and started another round of Powell-bashing which further unnerved markets. Trump got the message and toned down his comments. Fed Chair Powell ignored the President and in the middle of April said that “for the time being, we are well positioned to wait for greater clarity before considering any adjustments to our policy stance.”

The May 2 nonfarm payrolls report supported Powell’s view. The US gained 177,000 new jobs in April which was better than expected and with the unemployment rate steady at 4.2%, the Fed can afford to wait.

The Canadian Dollar and Bank of Canada

The Canadian dollar benefitted from a weaker U.S. dollar and surging gold prices but remained confined to a 1.3793–1.4333 range through April. The gains were not driven by domestic fundamentals, which remain soft, but by broader market dynamics and a slight reprieve from direct U.S. trade aggression.

The Bank of Canada held rates steady in April, maintaining the benchmark overnight rate at 4.50%. Governor Tiff Macklem cited “pervasive uncertainty” as justification for remaining on hold, particularly in light of ongoing trade risks. Inflation remained close to the 2.0% target, and GDP growth continued to underwhelm.

Although Canada was spared in Trump’s April 2 tariff announcement, existing duties on aluminum, potash, and lumber remain in place. The threat of auto tariffs has been dialed back with Trump excluding more car parts from tariffs.

Without a meaningful domestic growth catalyst, and with Trump’s trade policy continuing to cast a long shadow, the Canadian dollar is expected to remain inside April’s trading band.

Oil Prices

Crude oil markets were hammered in April. WTI began the month near $72.10 but dropped sharply to $55.05 before closing at 58.16 at month-end. Rising inventories, fading Chinese demand, and broader macroeconomic concerns weighed heavily on sentiment.

Even periodic geopolitical tension in the Middle East failed to reverse the slide. OPEC+ appears unwilling to intervene without more sustained price weakness, and U.S. shale production continues to add to supply.

The outlook for May remains clouded by uncertainty. Increased Iranian supply and talk that Saudi Arabia wants to raise its production is weighing on prices. In addition, weaker Chinese PMI data exacerbated by Trump’s trade war, suggests lower demand. Any unexpected escalation in the trade conflict could further limit WTI gains.

Forecast Table