- The S&P 500 has entered correction territory, down 10% from its February peak, wiping out $5 trillion in value. With economic slowdown concerns rising, there is an increasing risk that this correction could turn into a bear market.
- February inflation came in lower than expected (headline CPI at 2.8%, core CPI at 3.1%), briefly halting the stock selloff. However, one-off factors played a major role, and businesses are raising prices ahead of potential tariffs.
- President Trump announced a 200% tariff on European wine, champagne, and spirits while maintaining steel and aluminum duties. Canada and the EU are retaliating, increasing fears of a trade war that could weigh on economic growth.
- Markets expect the Fed to hold rates at 4.5% until June, but with inflation lingering and economic sentiment worsening, next week’s FOMC decision will be key. Powell’s comments on the rate outlook could determine the dollar’s direction
- Russian President Putin hinted at the possibility of renewed energy cooperation with the US, causing European natural gas prices to drop. This speculation comes as Trump pushes for an end to the war in Ukraine
- UK GDP shrank 0.1% in January, missing expectations and signaling continued economic stagnation. Despite this, the Bank of England is expected to hold rates at 4.5% due to persistent inflation risks, keeping pressure on UK assets
- The US dollar rebounded after a 7-day losing streak but remains down 5% from its 2025 peak, caught between trade-related volatility and Fed rate expectations.
Global Macro
Another week adding to global complexity
Correction. Investors continue to display a cautious stance amid tariff uncertainty and macro ambiguity. It isn’t surprising to see that the market rout resumed this week, sending the S&P 500 into correction territory as equities continued their three-week slide. The equity index is now down 10% from its February peak, equating to around $5 trillion of value lost. Around a quarter of all corrections turn into bear market, a scenario that increases in likelihood when the economy is slowing down such as now.
Cooler inflation, for now. A surprisingly cool set of February US consumer price inflation prints m/m pulled the annual rate of headline inflation down to 2.8% from 3% while core inflation dips to 3.1% from 3.3%. This halted the stock selloff that had put the S&P 500 on the verge of a correction. The details are less rosy though with a substantial 4% m/m drop in air fares (highly volatile) the main factor driving the softer inflation readings. Moreover, there’s brewing anecdotal evidence of firms pre-emptively raising prices ahead of potential tariffs with this week’s NFIB survey reporting a 10-point jump in the proportion of companies raising prices.
Focus on tariffs. Despite a softer US inflation print earlier in the week, escalating trade tensions weighed heavily on sentiment. President Trump announced a potential 200% tariff on European wine, champagne, and spirits, doubling down on trade tensions just a day after vowing to keep steel and aluminum duties in place.
Fed to remain cautious. Market pricing now suggests the Federal Reserve will stay put until June, though persistent inflation and deteriorating sentiment are complicating the policy path. Next week’s Fed decision and economic projections will be crucial, as investors look for clarity on how officials will balance stubborn inflation with weakening economic momentum.
Floating a deal. Natural gas futures plunged after Russian President Vladimir Putin floated the possibility of renewed energy cooperation with Washington. Speaking in Moscow, Putin suggested that if the US and Russia reached a deal on energy, pipeline gas to Europe could be restored. This speculation comes as US President Donald Trump intensifies his efforts to broker an end to the war in Ukraine, leading some to wonder whether energy trade restrictions might be loosened as part of a broader peace framework.
Tit-for-tat. President Trump’s latest tariff escalation has further rattled financial markets. Trump announced he would double planned steel and aluminum tariffs on Canada to 50% in response to Ontario’s tax hike on electricity exports. The administration has also announced a potential 200% tariff on European wine, champagne, and spirits. Canada and the EU are responding accordingly in a sign that the global trade war is ratcheting up. President Trump made it clear that he intends to retaliate against the EU’s countermeasures once again. This tit-for-tat will raise the already elevated tensions between both regions and could limit the upside on the euro for now.
UK wobble. The UK economy shrank 0.1% in January on a monthly basis, versus an expected expansion of 0.1% and markedly lower than December’s 0.4% print. However, the 3-month rolling average ticked up from 0.1% to 0.2%. It’s still a blow to the UK’s Labour party that has pledged to bring an end to over a decade of stagnation. Despite the slowing UK economy, the Bank of England is expected to keep its Bank Rate on hold at 4.5% next week due to growing inflationary risks.
Week ahead
Central banks convene
Next week’s market action will be dominated by central bank decisions and key sentiment data, with the Federal Reserve (FOMC), Bank of Japan (BoJ), Bank of England (BoE), and Swiss National Bank (SNB) all set to announce rate decisions.
The FOMC decision on March 19 will be the highlight of the week, with the Fed widely expected to keep rates unchanged at 4.5%. However, Chair Jerome Powell’s guidance will be key, as markets seek clarity on when rate cuts may begin.
Recent inflation readings suggest price pressures are moderating but remain above target, leaving the Fed in a difficult position. If Powell signals a later start to rate cuts, the US dollar could strengthen, while equities might face renewed pressure.
In Europe, the focus will be on inflation, as Eurozone CPI figures (March 19) will reveal how price trends are evolving. While headline and core CPI are expected to hold steady at 2.4% and 2.6% y/y, any surprises could influence ECB rate expectations.
Meanwhile, the BoE rate decision (March 20) is expected to keep rates at 4.5%, but UK labor market data coming out earlier that day should swing sentiment towards on or the other direction within the Board.
The only sentiment data for Europe will come in the form of the ZEW and European Commission surveys. They could show a significant uptick in business confidence due to the fiscal plan announced in Germany. The boost will be needed if the euro wants to maintain its upward trajectory.
FX Views
Consolidation amidst competing narratives
USD Searching for a bottom. The US dollar index snapped a 7-day decline earlier this week as European FX softened on trade policy uncertainty. The dollar remains close to pre-election levels though, still down over 3% on the month and over 5% from its 2025 peak. The US dollar remains caught between trade-related volatility, Fed repricing, and shifting risk sentiment. While the Trump administration’s aggressive stance on tariffs could provide short-term safe-haven support, investors are increasingly focusing on the longer-term economic damage. If trade uncertainty continues to weigh on equities and growth, the dollar’s safe-haven bid may not be enough to offset structural headwinds. With Trump’s tariff deadline fast approaching and recession risks climbing, next week’s Fed guidance could be the deciding factor in whether the dollar extends its recent slide or stages a comeback. In the very short-term – the upcoming US retail sales data on Monday poses a downside risk to the dollar if a rebound fails to materialize.
EUR Softens on trade war fears. The euro extended its gain to $1.0947 this week, briefly erasing all of its post-US election losses. With US growth scares and unwinding of Trump trades weighing on the dollar, and higher European spending proposals boosting European growth prospects and yields, the pair recorded its biggest weekly gain (4.5%) since 2009 at the start of March. Momentum has unsurprisingly waned though amidst fresh uncertainty surrounding trade and energy policy. With tariff threats still unresolved and economic risks lingering, EUR/USD remains stuck between competing narratives—fiscal optimism on one side, external uncertainty on the other. There is scope for EUR/USD to reclaim the levels of around $1.11 that prevailed before the markets started front-running the idea of the Trump trade though. In fact, real rate differentials suggest $1.15 could be on the cards later this year. A key obstacle to this is the escalating trade war, but we think if a German fiscal deal is achieved next week, EUR/USD should continue scaling higher.
GBP Eyes on the $1.30 prize. Sterling climbed to a fresh 2025 peak of $1.2988 on Wednesday, within a whisker of the key $1.30, before retracing as tariff headlines hit risk sentiment. GBP/USD is still almost 3% up month-to-date, and almost two cents above its 5-year average of $1.28, and the pair has dipped out of the overbought zone indicated by the 14-day relative strength index. Aside from improving UK growth and rate differentials relative to the US favouring the pound, the strong positive correlation between EUR/USD and GBP/USD should help the sterling’s uplift against the dollar. But the euro’s strength doesn’t bode well for GBP/EUR. The pair did snap a run of six consecutive daily losses though as focus turned to EU-US trade war risks following the EU’s retaliation to US tariffs. However, GBP/EUR is down 1.6% this month and if it closes the week below its 50-week moving average support level, we think a slide towards €1.1740 is feasible over the coming month. Otherwise, the pair might stay bound to a tight range given real rate differentials suggests €1.19 is fair value. Coming up, the Bank of England is expected to keep its Bank Rate on hold at 4.5%, so volatility may arise from a surprise vote split or tone of messaging.
CHF 8-month lows versus euro. The big news from Switzerland of late is that it has been put on a list of countries with “unfair trade practices” by the US due to its positive balance of trade in goods. The growth forecasts for the Swiss economy have since been revised downwards by some economists from 1.4% to 1.2% for 2025. Though this hasn’t directly hit the franc in a negative way, it highlights how no country is immune to Trump’s tariff policies, even Switzerland as one of the most open and fair-trading nations in the world. USD/CHF has stabilised at 0.88 after the previous week’s 3% drop. EUR/CHF on the other hand, hit a fresh 8-month high, breaking above key moving averages in a sign of a bullish trend reversal. Next week, the Swiss National Bank is expected to cut interest rates from 0.5% to 0.25%, which might further dampen demand for the lower yielding swissy. However, downside risk may be limited given its haven appeal amidst heightened geopolitical and trade policy uncertainty.
CNY Negative outlook persists amid mixed trade data. China’s exports grew 2.3% y/y in January-February while imports contracted 8.4% y/y, creating a record trade surplus of nearly $171bn. The import decline signals persistently weak domestic demand despite government stimulus efforts. USD/CNH maintains a negative short-term outlook after rejection at the Ichimoku Cloud. Price action continues below the Cloud despite easing downward momentum. Resistance sits at 7.3039 with support at 7.2800 and downside potential toward 7.1475. The pair’s recent price action suggests sellers remain in control with rallies likely to be sold. Technically, the downtrend remains intact as long as price stays below the Cloud resistance. Key catalysts ahead include Chinese economic data releases on industrial production, retail sales, and the loan prime rate.
JPY Consolidation phase as Japan monitors inflation transition. Japan remains cautious about declaring deflation’s end, noting a transition from import-driven to wage-driven inflation. The economy shows signs of supply constraints rather than demand weakness. USD/JPY, now near six-month lows is consolidating after finding support in the 146.95-148.86 zone, with positive momentum divergence suggesting a potential rebound. The pair appears set to establish a trading range with key resistance at 151.30-152.27. Technical indicators point to oversold conditions, supporting the case for near-term stabilization. The recent decline’s decelerating momentum reinforces this outlook. The chart shows inverse correlation between Nasdaq and USD/JPY as the yen is typically a vehicle for global carry trade. Stronger Yen may contribute to the recent slowdown in AI-driven tech rally. The BoJ rate decision will be crucial for determining whether the current support holds or breaks.
CAD A tariff-driven rate cut by the BoC. The Bank of Canada’s rate cut decision was largely anticipated by the markets. A tariff-driven 25 bps cut had been expected, as the central bank highlighted concerns about an impending crisis with the implementation of steel and aluminum tariffs, along with countermeasures by the Canadian government, this week. A brief spat between President Trump and Ontario Premier Doug Ford introduced some volatility to the USD/CAD. Nevertheless, for most of the week, the Loonie traded within a narrow range despite the barrage of news and the prevailing risk-averse sentiment in the markets.
The USD/CAD posted a high of 1.4521 this week and a low of 1.434, marked by significant intraday swings that revealed strong resistance above 1.45, with no indication of easing below 1.43. The Loonie remains above the 20-, 40-, and 60-day SMAs, while implied volatility has dropped considerably. April 2nd will be a pivotal date to evaluate the broader trajectory of U.S. trade policy. President Trump’s advisors have differentiated between tactical tariffs, employed as negotiation tools to secure specific concessions, and structural tariffs, aimed at reshaping U.S. trade policy in the long term.
AUD Business sentiment retreats as base pattern forms. Australian business confidence turned negative in February, dropping 6 points to -1 amid persistent cost pressures. Purchase costs accelerated to 1.5% q/q while profitability remained in negative territory. AUD/USD shows signs of forming a medium-term base but needs to clear the 0.64 resistance to confirm this outlook. Support lies at the 50-day moving average (0.6305) and the 0.6157-0.6211 Fibonacci zone. Price action indicates potential upside if these support levels hold. The pair remains range-bound with an upward bias, showing resilience despite the softer domestic data. The next key resistance is at its 200-day moving average (0.6452). Watch for upcoming employment data which could provide the catalyst needed to challenge the critical 0.64 resistance level.
MXN Avoiding retaliatory measures. Mexico’s peso strengthened this week, outperforming most other emerging market currencies. Commerce Secretary Howard Lutnick commended Mexico for not engaging in retaliatory tariff hikes against the U.S. On Wednesday, Mexican President Claudia Sheinbaum delayed any response to U.S. tariffs on steel and aluminum imports, opting to continue negotiations with the Trump administration. Lutnick also praised the UK and Mexico for avoiding tit-for-tat tariff escalations, contrasting them with other trading partners. He cautioned that countries provoking President Trump with retaliatory measures risk facing severe consequences. Mexican Peso has gained 3.5% versus the USD year to date, eyeing the 20-level support, as net short positioning unwinds against the Peso.
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.