Dollar Strength Builds as Policy Divergence Re-emerges | Weekly Recap: 27 April - 01 May 2026

Global markets stabilised last week as policy divergence returned to focus. US resilience continued to support risk sentiment, while Europe and Asia lagged, reinforcing a more selective market environment.

Economic Overview

The week was shaped by a renewed focus on policy divergence, as markets reassessed the relative strength of global growth and its implications for central bank positioning. While energy-driven volatility dominated earlier in April, attention shifted back toward underlying macro resilience, particularly in the United States.

In the US, activity indicators remained stable, keeping rate expectations broadly anchored. Inflation continues to moderate at the margin, but not enough to materially alter the Fed’s stance, reinforcing expectations of a cautious and data-dependent policy path.

Across the euro area, the picture remained mixed. While earlier flash PMIs pointed to contraction, sentiment stabilised into the end of the week, with activity hovering around the 50 threshold, signalling limited but improving momentum.

In the UK, the data flow was more constructive. The Flash Composite PMI rose to 52.0, indicating a clearer return to expansion, supported by services activity despite ongoing weakness in manufacturing.

In Asia, China’s growth backdrop remained stable at a headline level, although domestic demand indicators continued to show unevenness. Japan, meanwhile, benefited from a supportive external environment, with the BoJ maintaining its gradual approach to policy normalisation.

Taken together, the macro environment continues to reflect persistent divergence, with US resilience acting as the primary anchor for global risk sentiment.

Markets Overview

Equities

Equity markets showed resilience, although performance remained selective rather than broad-based.

In the US, the S&P 500 rose 0.78%, closing at 7,230.12, extending its move into record territory. The Nasdaq maintained leadership, supported by continued strength in large-cap technology.

European markets recovered at the end of the week. The STOXX Europe 600 rose 0.16%, finishing at 611.55, suggesting that while growth concerns persist, markets are not pricing a sharper slowdown.

In Asia, performance was mixed. Japan’s Nikkei 225 declined 1.69%, consolidating after reaching an all-time intraday high earlier in the week. Hong Kong’s Hang Seng fell 0.78%, reflecting continued caution around domestic demand conditions.

Bonds

Bond markets reflected a stable policy backdrop.

US Treasury yields held within recent ranges, with the 10-year near 3.70% and the 2-year remaining elevated, reinforcing expectations of a higher-for-longer policy environment. European yields followed a similar pattern, indicating no material shift in rate expectations.

Commodities

Oil prices remained firm, suggesting geopolitical risk premia have not fully dissipated.

Gold held broadly steady, supported by stable real yields and underlying macro uncertainty.

Overall, cross-asset performance suggests markets are stabilising, but conviction remains selective rather than broad-based.

Sector Performance

Sector performance reflected the prevailing higher-for-longer rate environment alongside ongoing energy sensitivity.

Energy led gains, rising 3.57%, supported by firm crude prices and persistent supply-side risks. Financials followed with a gain of 1.13%, benefiting from elevated yields, while Technology advanced 1.05%, continuing to support broader US indices.

Consumer Staples rose 1.08%, indicating selective defensive demand, while Industrials increased 0.32%, showing more modest participation. Consumer Discretionary declined 0.05%, highlighting continued sensitivity to demand conditions.

Overall, sector performance suggests investors remain selectively positioned, balancing exposure between growth and defensive segments rather than committing to a full cyclical rotation.

Regional Markets

Regional performance reinforced the theme of US leadership, although other markets showed signs of stabilisation.

North America rose 0.78%, supported by the S&P 500 reaching record highs. Europe advanced 0.16%, recovering into the end of the week, suggesting sentiment has stabilised despite ongoing growth concerns. The United Kingdom posted a modest gain of 0.11%, supported by stronger PMI data.

In Asia, Japan declined 1.69%, reflecting consolidation, while China (Hang Seng) fell 0.78%, remaining the weakest region amid continued domestic demand concerns.

This divergence highlights that while global markets are no longer uniformly under pressure, capital continues to favour US assets, with other regions lagging.

Currency Markets

Foreign exchange markets reflected a clearer expression of policy divergence.

• EUR/USD: 1.1633 → 1.1731: Strengthened as the dollar eased slightly.
• GBP/USD: 1.3533 → 1.3576: Edged higher, reflecting relative stability.
• USD/JPY: 159.43 → 157.06: Fell as the yen strengthened on softer yields.
• GBP/JPY: 215.78 → 213.21: Lower as yen strength outweighed sterling gains.

Overall, FX markets continue to reflect relative US resilience alongside persistent policy divergence.

Outlook and The Week Ahead

The focus now shifts to whether this divergence can persist without reigniting inflation concerns.

Key releases this week include US ISM Services PMI and Nonfarm Payrolls (8 May), which will be critical in confirming whether US growth remains the primary anchor for global markets or begins to moderate.

Central bank communication will also remain key in shaping expectations around the timing and pace of any policy adjustment.

The key question for markets is whether this divergence can be sustained, or whether global growth begins to converge in the weeks ahead.