- The Fed kept rates unchanged and maintained its forecast for two cuts in 2025, boosting optimism. The S&P 500 surged, posting its best Fed decision day since mid-2022, while hopes of a Ukraine ceasefire added to the bullish sentiment.
- The post-Fed rally was short-lived as US equities fell back into negative territory. Trade tensions and concerns over global growth kept investors cautious, with Fed Chair Powell emphasizing a patient and adaptable stance.
- ECB President Lagarde warned that EU retaliation against US tariffs could slow growth but downplayed inflation risks. Markets interpreted this as a sign that the ECB would not raise rates in response, pressuring the euro.
- The Bank of England left rates at 4.5%, as expected, with an 8-1 vote suggesting a shift toward a more hawkish stance. Policymakers cited little change in domestic conditions but acknowledged rising global trade uncertainty.
- Despite remaining in a broader downtrend, the dollar saw renewed demand amid Fed policy uncertainty and geopolitical risks. The DXY index is on track for its first weekly gain in March, supported by shifting Fed expectations.
- The EUR/USD reached $1.0955, its highest since October, before losing momentum. Political uncertainty in Germany and the impact of US tariffs could challenge euro strength in the coming months.
Global Macro
Markets post-Fed flip-flop
Initial positivity…Markets roared back to life on Wednesday after the Federal Reserve (Fed) kept rates unchanged and maintained its forecast for two rate cuts this year, while optimism grew around a potential ceasefire in Ukraine. Equities surged, with the S&P 500 recording its best Fed decision day since July 2022.
…stalled. However, the post-Fed euphoria proved short-lived, as US equities slipped back into negative territory on Thursday, weighed down by renewed trade uncertainty and ongoing concerns over global growth. Traders are still uncertain about the trajectory of the US economy amid continued policy and geopolitical risks. Fed Chair Jerome Powell acknowledged these risks but emphasized that policymakers would remain patient, noting that the Fed’s stance is “well-positioned to react to what comes”.
Dovish ECB. Speaking to European lawmakers on Thursday, ECB President Lagarde warned of weaker growth but downplayed inflation risks if the EU retaliated against US tariffs. The sharpest impact would come in the first year, with lingering effects on output, though inflationary pressures would fade over time, signaling the ECB would not respond with higher rates. This weighed on the euro.
Unchanged BoE. The Bank of England (BoE) kept rates unchanged at 4.5% as expected, but what comes next is ambiguous amid evident nervousness surrounding the inflation outlook. The vote split was one of the key focus points, and at 8-1, that suggests momentum has shifted in a more hawkish direction. The overall message from the BoE was that there had been little in the way of domestic economic developments since the February meeting, but that the degree of global trade policy uncertainty has increased.
Week ahead
US inflation and European macro check
US inflation in focus. A key focus for the US will be inflation and growth data. On Thursday, the final Q4 GDP reading is expected to confirm a 3.1% expansion, reinforcing the resilience of the economy. However, Friday’s Core PCE Price Index will be the highlight, with markets looking for signs of easing price pressures. Alongside this, personal income and spending data will provide insight into consumer strength, while durable goods orders on Wednesday could indicate business investment trends.
Spring Budget Statement. Britain’s public finances are under pressure, and Chancellor Rachel Reeves will face difficult choices at the Spring Statement on 26 March due to rising debt interest costs. The Treasury has likely lost all of the £10bn ‘headroom’ it had available under its fiscal rules last October, following a rise in government borrowing costs over the winter. While spending cuts may help, they have their limits. Unless the UK economy experiences unexpected growth this summer, further tax increases seem likely in the autumn. The Office for Budget Responsibility is poised to lower its near-term growth forecasts but upgrade its inflation projections.
European sentiment check. The UK’s February CPI report on Wednesday is expected to hold at 3.0% YoY, with any surprises potentially influencing Bank of England rate expectations. The eurozone will see preliminary March inflation readings from France (Friday), while Germany’s GfK Consumer Confidence index (Friday) and Ifo Business Climate survey (Tuesday) will provide a pulse check on economic sentiment. UK retail sales (Friday) will also be in focus, offering a gauge of consumer resilience amid continued economic uncertainty.
FX Views
Feel good vibes falter
USD Firms after Fed. The US dollar remains in a downtrend, having shed nearly 6% from its January peak, but the combination of Fed uncertainty and geopolitical risks continues to create pockets of demand. Indeed, the DXY is primed for its first weekly rise this month. The dollar rallied ahead of the Fed’s decision due to hawkish bets but saw corrections post-statement as markets chose to focus on the dovish tilt in balance sheet policy vs. the more hawkish shift in the dot plot. Treasury yields declined, with the two-year note falling below 4% as traders reassessed the Fed’s path forward. Fed Chair Powell’s confidence in avoiding a deep recession or prolonged inflation also favoured risker assets. However, the fading rotation from US to European equities supports a stabilising view for the dollar in the short term. Upcoming data risks, including jobs and core PCE figures, could challenge Fed pricing and macro sentiment stabilisation is needed to sustain a USD recovery. The introduction of universal US tariffs on April 2 may be the catalyst to provide fresh momentum for the greenback in the second quarter.
EUR Peak optimism already? The euro rose to $1.0955 versus the USD – its highest level since October, but momentum waned, with the pair trading back into neutral zone via the 14-day RSI. The common currency failed to gain on Ukraine peace deal hopes and the German Bundestag approval of the debt break constitutional change. Thus, it appears to have fully priced in the benefits of spending reforms, nearing peak optimism on fiscal boosts. Moreover, Germany’s lack of a government and challenging coalition talks could complicate the outlook. Although the German fiscal package should lift pressure from the ECB to support the Eurozone economy, meaning rate differentials should also be supportive for the common currency, the second quarter may bring a reality check for European optimism, especially with US tariffs set to take effect, potentially dampening euro momentum. EUR/USD remains almost 5% higher year-to-date and well above its 200-day moving average support resting nearer $1.07. But the struggle to break above $1.10 suggests a test of this downside target might be in the offing over the next few weeks.
GBP No major impact from BoE. The pound pulled back from overbought territory versus the US dollar this week, after briefly peeking over the $1.30 handle but failing to meaningfully hold and rise beyond. GBP/USD is primed for its first weekly loss in three but remains almost 3% higher month-to-date and circa 7% higher than its 2025 low of $1.21. The BoE’s 8-1 vote to keep rates unchanged did little to move the dial on policy expectations as traders paid more attention to external uncertainties, with global risk aversion denting the risk-sensitive pound’s appeal. Looking further down the line, the $1.35 mark could be a key upside target if the stars align. We’d need global risk sentiment to improve and the US economic outlook to continue worsening alongside rising UK-US yield spreads. Meanwhile, GBP/EUR is already firmly back above the €1.19 mark with the 50-week moving average (€1.1888) offering decent support. Sterling’s carry advantage due to higher UK yields remains constructive for the cross as UK rates are still expected to be closer to 4% whilst Eurozone rates are expected to be near 2% by year-end. However, narrowing growth and real rate differentials should benefit the euro over the medium term, potentially capping upside beyond 2025 peaks.
CHF Easing on downside risks to inflation. EUR/CHF has stayed within a 0.93-0.95 range most of this quarter and broke higher only after news of Germany’s historic plan to ramp up spending. However, traction to the upside loss steam after hitting an 8-month high the week prior. The Swiss franc has seen outsized weekly moves against the euro this month, so the cross was poised ahead of the SNB’s rate decision this week. The franc erased some of its recent gains against most major peers following the SNB’s decision to cut rates to over 2-year lows and cited increasing downside risks to inflation. Interest-rate differentials are taking center stage right now and given the more aggressive easing cycle by the SNB and the bullish fiscal injection for Europe, the path of least resistance for EUR/CHF remains higher in our view. Options traders agree with one-year risk reversals indicating they are the least bullish the franc in nearly eight months. No strong technical resistance in place until the July highs at 0.9774, while the 200-week moving average, which hasn’t been tested in four years, currently stands at 0.9894.
CNY In tariff preparation mode. The Chinese yuan slipped to a one-week low against the dollar and is set for a weekly decline as USD/CNY battles with its 100-day moving average (MA) to the topside, with its 200-day MA offering decent support at 7.21. The recent uplift in the pair is partly due to the rebound in the US dollar, supported by Fed’s cautious stance on rate cuts. Additionally, renewed trade tensions between the US and China have weighed on sentiment, with concerns over potential tariff escalations. Should the tariff fallout be negative for the yuan though, any decline from there might be moderated given the currency has been kept on the soft side for the past two months. In fact, it’s possible that investors might respond positively and drive a rebound in the yuan if April 2 unfolds without any surprises or outcomes worse than anticipated, leading to a sense of relief in the market.
JPY A topsy-turvy time. USD/JPY nudged above the 150 handle for the second time this month before reversing over 1% as traders digested the latest policy holds from the Bank of Japan and Fed. But the yen is ending the week in the red across the board, primed for its second weekly decline in a row versus the US dollar. While risk aversion typically supports the yen as a safe-haven currency, the broader market focus on global economic uncertainties and the Fed’s cautious stance has bolstered the dollar instead. The BoJ’s measured approach to policy adjustments, despite inflationary pressures, has limited expectations for immediate rate hikes, further weighing on the yen. These dynamics have collectively overshadowed strong domestic CPI data. Options traders have now turned less bullish on the Japanese currency over the coming month, but we think the yen can rely on a narrowing rate spread versus the dollar for support in the weeks ahead if US data continues to disappoint and Fed easing bets thus increase.
CAD Waiting for April 2nd. The USD/CAD has been remarkably stable this week, navigating a drama-free tariff environment, hotter-than-expected CPI data, and a post-Fed meeting boost. Inflation was expected to rise following the expiration of a tax break, but the price increases turned out to be surprisingly broad-based, limiting the Bank of Canada’s response to tariffs in the coming meetings. For Canada and the Loonie, the key question remains the longevity of US tariffs and the potential Canadian response. With USMCA/CUSMA renegotiations ongoing until mid-2026, Canada’s immediate focus is on swiftly and effectively securing tariff exemptions. The Loonie has traded within a range of 1.427 to 1.440, finding support at the 20-week SMA of 1.428. Market participants have quickly shorted price increases above 1.439. As Canada awaits April 2, attention next week will shift to US macro data, particularly manufacturing and services PMI, PCE, and consumer confidence reports.
AUD Trapped under ice. The Australian dollar remains mostly pressured with the AUD/USD stuck in a trading range near the five-year lows while the Aussie underperforms in other markets. The Aussie was hit mid-week after the February employment report missed expectations, with a loss of 52.8k jobs, a huge gap from the 30k increase expected. The unemployment rate held steady at 4.1%. The Aussie tumbled on the news, snuffing out an earlier rally, and again rejecting the major resistance level at 0.6400. For now, the AUD/USD remains in a clear trading range between 0.6200 and 0.6400. The risk remains for a further break lower, with the market stuck in a long-term downtrend as evidenced by the downward sloping 200-day moving average. Next week, the February CPI number is key, with a weaker number potentially adding the AUD’s aura of negativity.
MXN Banxico to cut rates by 50 bps to 9%. Banxico is expected to announce another 50bp rate cut on March 27, consistent with its prior guidance in the latest statement and quarterly report. With inflation well within the target range, the central bank is shifting its focus from inflation control to fostering growth.
The currency appears to be aligning with the positive performance of its LatAm peers in recent weeks. Commerce Secretary Lutnick commended Mexico for avoiding retaliatory tariff hikes with the U.S., suggesting that Sheinbaum’s non-confrontational approach is yielding benefits for now. However, markets remain wary of the MXN as April 2 brings uncertainty about how Mexico can evade tariffs in the long term. Speculation grows that Mexico may introduce stricter rules on Chinese imports, particularly in auto parts, along with securing more border defense wins. Such measures could position Mexico as a frontrunner for tariff exemptions post-April 2.
The currency has remained stable, rebounding toward its 200-day SMA and reclaiming the 20 level. Next week, range-bound trading between 19.7 and 20.3 is anticipated, as the Banxico rate cut is largely priced in. Markets will be closely watching how dovish the central bank turns amid medium-term growth risks.
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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.