The global equity selloff continues, the US dollar’s rebound is gaining traction and Treasury yields are suffering their worst weekly slide since September. Investors are avoiding risky bets due to US President Donald Trump ratcheting up tariff threats, which has seen the euro pull back sharply from 2-month highs versus the dollar. Meanwhile, the pound is outperforming most G10 peers bar the dollar and franc this week and is eyeing its highest weekly close in over three years versus the euro. On the data docket today, all eyes are on the Fed’s preferred measure of inflation.
Dollar balancing tariffs, weaker growth
Boris Kovacevic – Global Macro Strategist
The trade and geopolitical news flows once again overshadowed what seemed to be a pretty important day for US macro developments. Durable goods, home sales, jobless claims and GDP data sent mixed signals about the state of the worlds largest economy. GDP grew by an annualized 2.3%, while unemployment claims rose to a 2-month high and tumbled for a second consecutive month. Overall, the data continues to point to weaker economic momentum ahead and the dollar would have depreciated against this backdrop would it not have been for the tariff news.
Markets once again reacted to fresh tariff announcements made by the US President. Donald Trump confirmed that the 25% tariffs on Canada and Mexico will go into effect, while also hinting at potential new levies on China as soon as March. This bolstered the dollar against the Canadian Dollar and Mexican peso. However, the strengthening of the Greenback broadened out to most major currencies as well.
Beyond trade, Trump’s refusal to commit to a security backstop in Ukraine added another layer of geopolitical uncertainty. Meeting with UK Prime Minister Keir Starmer, he reiterated that the focus should first be on securing a peace deal between Russia and Ukraine, rather than discussing long-term military commitments.
Still, conviction around a sustained dollar rally is fading, as tariff fatigue and growth concerns begin to weigh on sentiment. Traders remain cautious despite the elevated trade uncertainty and lack of policy clarity. For now, FX markets remain driven by trade headlines, with the dollar benefiting from renewed tariff bets—but the long-term picture remains far from clear.
The US dollar index will likely end the week higher, a feat the dollar has only achieved once in the last seven weeks. The last hurdle to overcome is the US PCE report due today. The core figure could slow on a month-on-month basis. However, personal spending is expected to remain robust.
Euro back on the defence
Boris Kovacevic – Global Macro Strategist
Fresh trade tensions are adding pressure to the euro, as President Trump confirmed 25% tariffs on Canada and Mexico and hinted at new levies on China. While the EU was not directly targeted, the risk of further escalation weighs on sentiment, especially with Trump’s criticism of European trade policies and VAT systems still lingering.
While the dollar initially rallied on the tariff news, conviction around sustained USD strength is fading, as the economic drag from higher trade barriers could outweigh short-term inflationary effects. For the euro, the uncertainty keeps upside limited, with EUR/USD hovering under $1.0400 as traders assess whether tariffs will remain a US-focused issue or expand further.
On the other hand, the ECB remains confident that policy is still restrictive, but the debate over future rate cuts is intensifying as per the meeting minutes released yesterday. A 25bp cut next week to 2.5% is expected, yet officials are divided. Some have shown worries about sticky services inflation and trade risks, while others fear weak growth and missing the 2% inflation target. The neutral rate remains a wildcard, with policymakers questioning its usefulness as a policy guide. Meanwhile, disinflation is on track, but wage growth and energy risks call for caution.
Risk sensitive or safe haven sterling?
George Vessey – Lead FX & Macro Strategist
As we explained in yesterday’s report, the pound’s high yielding status is a double-edged sword in that when the market mood is upbeat, sterling tends to appreciate, but in deteriorating global risk conditions, the pound becomes more vulnerable. Hence, the latest bout of tariff angst has sent GBP/USD tumbling from $1.27 to $1.2570 in 24 hours. GBP/USD has erased its weekly gains and more, whilst several key moving averages continue to act as hurdles to the upside.
Apart from weakening against the US dollar though, some analysts think the FX market is viewing the pound as a tariff safe-haven of sorts, driven by confidence that the UK is less economically vulnerable to tariffs compared to major exporters like the EU. This is evidenced by sterling appreciating against the euro and holding above €1.21. If it closes the week above this level, it will be the highest weekly closing price in almost three years. If we look at sterling more broadly though, it appreciated against less than 50% of its global peers yesterday, which contradicts this sterling safe haven theory. Moreover, sterling’s vulnerability to global risk aversion due to its reliance on foreign capital inflows would likely limit any haven demand in our view.
Nevertheless, the meeting between US President Donald Trump and UK Prime Minster Keir Starmer appeared constructive, with hopes of a trade deal boosting the odds of the UK avoiding tariffs. The UK is one of the only countries in the world to have a neutral trade relationship with the US in goods, so it’s hard to see how/why Trump would have imposed them anyway. But even if the UK does evade tariffs, a slowdown in global trade would still hurt the UK economy, which would weigh on the pro-cyclical pound.
*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.
Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
Global markets weaken led by tech shares
The Australian dollar was the biggest loser overnight after US president Donald Trump warned of another round of 10% tariffs on Chinese goods entering the US and said tariffs on Mexico and China would be introduced from next week.
The tariff news hit already shaky US markets with tech stocks leading the losses as AI chipmaker Nvidia fell 8.5% despite a strong earnings report.
The tech-focused Nasdaq fell 2.8%, the S&P 500 lost 1.6% while the Dow Jones index lost 0.5%.
The AUD/USD fell 1.2% with the pair at three-week lows – a sharp turnaround from the two-month highs seen at the start of the week.
The NZD/USD lost 1.1% with the pair now down 2.5% from last week’s highs.
Inflation fears support EUR
In Europe, the euro and British pound were both sharply lower.
Looking forward, today we see the release of the Euro Area ECB Consumer Expectations Survey.
Since their September 2024 lows, the 1y and 3y forward median inflation predictions have increased. Currently, they are 2.8% and 2.4%, respectively.
In order to prevent inflation expectations from rising and running the danger of de-anchoring, the ECB will be regularly monitoring them.
Even though we think that the impact of US tariffs and Europe’s retaliatory tariffs on European inflation would be minimal, consumer inflation expectations might nonetheless rise slightly as a result.
In APAC, the euro’s been mixed, down near three-year lows versus the Singapore dollar, but mostly stronger against the Australian dollar.
USD/SGD, USD/CNH jump on tariff news
The overnight moves in the US dollar saw big shifts in Asia FX, with regional pairs highly sensitive to news around tariffs.
The USD/SGD jumped 0.7% as it neared the 1.3500 level, while USD/CNH gained 0.5% towards 7.3000.
Over the weekend, China’s official PMI will be made public. Given the pent-up demand for the consumer trade-in program, we anticipate that the official manufacturing PMI will increase from 49.1 in January to 50.2 in February.
As USD/CNH recovers from support, further upward momentum is possible.
Aussie dollar limbo – how low can you go-go?
Table: seven-day rolling currency trends and trading ranges
*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.
Yesterday’s market session was split into two distinct phases, as investors began the week by selling risk assets amid growing concerns of a U.S. slowdown. Recession fears intensified following weaker-than-expected leading indicators from the Chicago and Dallas Federal Reserves. U.S. equities fell, bond yields plunged, and the dollar followed suit, pressured by deteriorating sentiment.
However, dip buyers stepped in during the U.S. session, helping equities and the Greenback recover some losses. Overall, the impact of the day’s news and data appeared to be net-neutral for markets. That said, recent growth concerns could become a bigger problem for risk assets if soft economic data persists, making secondary indicators increasingly important to monitor.
The dollar ended the day slightly lower after briefly touching its weakest level since mid-December. As we highlighted in our feature for Fortune, the dollar remains under pressure for two key reasons: the absence of new tariffs reducing safe-haven demand and the Fed’s pause being linked to rising inflation expectations rather than strong macro data. With recent data reaffirming these trends, the dollar has struggled to benefit from steady rates, currently sitting at its lowest level this year, down 3.4% from January’s peak.
For a meaningful rebound, dollar bulls will need either stronger U.S. economic data or renewed tariff enforcement by Trump. The latter could materialize today, as Trump reiterated overnight that tariffs on Canadian and Mexican goods will be implemented once the delay expires.
New government, old problems
Boris Kovacevic – Global Macro Strategist
The euro briefly climbed above $1.05, reaching its highest level in nearly a month before retreating to $1.0460. Investors see the potential for increased fiscal spending, particularly in defense, as a way to support economic activity. However, fiscal constraints may limit the impact, as political hurdles complicate efforts to boost spending. Meanwhile, business sentiment is showing cautious optimism, though immediate economic conditions remain subdued. We will continue to monitor political developments and key macro releases, as they will play a crucial role in shaping EUR/USD’s near-term direction.
Following the German election outcome, Chancellor-designate Friedrich Merz is actively engaging with the Social Democrats (SPD) to accelerate defense spending in response to escalating geopolitical tensions. However, the rise of fringe parties, securing a minority with blocking rights, has complicated efforts to amend the constitutional “debt brake”, which restricts government borrowing. To navigate these constraints, Merz is considering pushing reforms through the current parliament before the new session begins on March 24. These political maneuvers have added uncertainty to the euro’s performance, as markets assess their potential economic impact.
On the macro front, the Ifo Institute’s latest survey indicates a modest improvement in business expectations, with the index rising to 85.4 in February, up from 84.3 in January, and exceeding forecasts of 85.0. However, current conditions worsened, highlighting that while businesses are hopeful about the future, they continue to struggle with present challenges..
Pound running into resistance
Boris Kovacevic – Global Macro Strategist
The pound climbed to a nine-week high of $1.2690 before encountering resistance near $1.27. Strong UK data and persistent inflation in recent weeks continue to provide support, leaving room for further gains—especially if U.S. economic momentum slows in parallel.
However, geopolitical risks remain a key factor. Trump’s tariff agenda, while not directly targeting the UK, could disrupt global trade flows, particularly with China and the eurozone, leading to potential spillover effects for Britain. Meanwhile, elevated UK inflation still supports GBP, but a renewed rise in gilt yields—back toward January highs—could shift rate expectations from a tailwind to a headwind if fiscal concerns resurface.
This morning, the pound is trading in the lower $1.26 area, as a risk-off mood takes hold following Trump’s overnight comments. The administration is set to raise tariffs on major trading partners and is considering further restrictions on China’s access to advanced chips, adding fresh uncertainty to markets..
*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.
During a press conference yesterday, President Trump confirmed that tariffs on Canada and Mexico are ‘on time and on schedule’ to begin on March 4th, following the one-month pause. Markets are still hesitant to fully price in the threats and aren’t anticipating the tariffs will be imposed. Don’t be surprised if Trump lifts the tariff until the very last minute, as he did previously.
We’ve been trying to make sense of all the noise and commentary from President Trump. Initially, the tariffs were seen as a bargaining tool or a way to reduce the US deficit, but as time goes on, the motivation becomes clearer. Trump’s recent post on Social Truth spells trouble for Canada. It remains unclear whether the tariffs will apply only to Canada and Mexico, to steel and aluminum, to reciprocal tariffs, or to all of these. However, as the debt ceiling agreement deadline approaches on March 14th, the Trump administration is expected to push for its tax cut agenda, which includes revenue projections from tariffs and fiscal spending cuts from the newly established Department of Government Efficiency (DOGE).
The revenue projections from tariffs come from Commerce Secretary Howard Lutnick, who claimed that reciprocal tariffs could generate $700 billion annually. Also, Kevin Hassett, the director of the National Economic Council, estimated that a 10% levy on Chinese imports could yield between $500 billion and $1 trillion over 10 years. While Republicans see tariffs as a significant revenue source, these numbers alone seem far fetched from a macro point of view and will face challenges in congressional hearings.
So far, the US Senate has passed its $340 billion border bill, which excludes tax cuts. Meanwhile, the House is advocating for a single comprehensive bill that incorporates tax extensions and border spending. This bill has advanced through the Budget Committee, but only after making concessions to fiscal conservatives. The proposed bill is an extension of the 2017 tax cuts, which according to the proposed numbers, could cost $4.8 trillion over the next 10 years.
Starting the week, the Loonie began testing upward resistance levels at 1.425. In the absence of significant news, as we get closer to March 4th, it could again face upward pressure, pushing it to test the 20, 60, and 40-day SMAs resistance zone between 1.43 and 1.435.
Dip buyers save the day
Boris Kovacevic – Global Macro Strategist
Yesterday’s market session was split into two distinct phases, as investors began the week by selling risk assets amid growing concerns of a U.S. slowdown. Recession fears intensified following weaker-than-expected leading indicators from the Chicago and Dallas Federal Reserves. U.S. equities fell, bond yields plunged, and the dollar followed suit, pressured by deteriorating sentiment.
However, dip buyers stepped in during the U.S. session, helping equities and the Greenback recover some losses. Overall, the impact of the day’s news and data appeared to be net-neutral for markets. That said, recent growth concerns could become a bigger problem for risk assets if soft economic data persists, making secondary indicators increasingly important to monitor.
The dollar ended the day slightly lower after briefly touching its weakest level since mid-December. As we highlighted in our feature for Fortune, the dollar remains under pressure for two key reasons: the absence of new tariffs reducing safe-haven demand and the Fed’s pause being linked to rising inflation expectations rather than strong macro data. With recent data reaffirming these trends, the dollar has struggled to benefit from steady rates, currently sitting at its lowest level this year, down 3.4% from January’s peak.
For a meaningful rebound, dollar bulls will need either stronger U.S. economic data or renewed tariff enforcement by Trump. The latter could materialize today, as Trump reiterated overnight that tariffs on Canadian and Mexican goods will be implemented once the delay expires.
New government, old problems
Boris Kovacevic – Global Macro Strategist
The euro briefly climbed above $1.05, reaching its highest level in nearly a month before retreating to $1.0460. Investors see the potential for increased fiscal spending, particularly in defense, as a way to support economic activity. However, fiscal constraints may limit the impact, as political hurdles complicate efforts to boost spending. Meanwhile, business sentiment is showing cautious optimism, though immediate economic conditions remain subdued. We will continue to monitor political developments and key macro releases, as they will play a crucial role in shaping EUR/USD’s near-term direction.
Following the German election outcome, Chancellor-designate Friedrich Merz is actively engaging with the Social Democrats (SPD) to accelerate defense spending in response to escalating geopolitical tensions. However, the rise of fringe parties, securing a minority with blocking rights, has complicated efforts to amend the constitutional “debt brake”, which restricts government borrowing. To navigate these constraints, Merz is considering pushing reforms through the current parliament before the new session begins on March 24. These political maneuvers have added uncertainty to the euro’s performance, as markets assess their potential economic impact.
On the macro front, the Ifo Institute’s latest survey indicates a modest improvement in business expectations, with the index rising to 85.4 in February, up from 84.3 in January, and exceeding forecasts of 85.0. However, current conditions worsened, highlighting that while businesses are hopeful about the future, they continue to struggle with present challenges.
Pound running into resistance
Boris Kovacevic – Global Macro Strategist
The pound climbed to a nine-week high of $1.2690 before encountering resistance near $1.27. Strong UK data and persistent inflation in recent weeks continue to provide support, leaving room for further gains—especially if U.S. economic momentum slows in parallel.
However, geopolitical risks remain a key factor. Trump’s tariff agenda, while not directly targeting the UK, could disrupt global trade flows, particularly with China and the eurozone, leading to potential spillover effects for Britain. Meanwhile, elevated UK inflation still supports GBP, but a renewed rise in gilt yields—back toward January highs—could shift rate expectations from a tailwind to a headwind if fiscal concerns resurface.
This morning, the pound is trading in the lower $1.26 area, as a risk-off mood takes hold following Trump’s overnight comments. The administration is set to raise tariffs on major trading partners and is considering further restrictions on China’s access to advanced chips, adding fresh uncertainty to markets.
*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.
The blueprint of a threat, followed by a deadline extension, was on display yesterday, as the presumed March 4th deadline for Canada and Mexico might now be pushed back to early April. The Eurozone also faced a new round of tariff threats from President Trump, capping the EUR/USD at 1.05. As highlighted in previous Daily Market Updates (DMU), speculation is rife about another push towards April 2nd, aligning with the deadline President Trump set for his cabinet to assess reciprocal tariffs and global trade relations.
Since inauguration day, trade policy has been a rollercoaster of uncertainty. It’s now unclear whether the steel and aluminum tariffs, initially set to begin on March 12th, will also be postponed to April 2nd. For now, the FX markets will believe in tariffs only when they see them.
The Loonie has encountered resistance at the 1.435 level, as flight-to-quality persists in the US markets amid widespread uncertainty. From macroeconomic data to fiscal spending cuts, debt ceiling negotiations, US-Russia relations, and the burgeoning relationship between the Chinese government and the mega tech industry, investors face a myriad of questions with no clear playbook for navigating these uncertain times.
As a result, the fear index, or the VIX, has been up and down between the alarming 20 levels and 17. Nvidia’s strong quarterly earnings have provided a measure of relief to the markets, amid the prevailing uncertainty and doubts about the sustainability of AI momentum in corporate America.
The uncertainty has particularly impacted the crypto market, causing a sell-off that has wiped out around $400 billion in market capitalization over the last few days. BTC/USD is now trading at 86,000, significantly below its all-time high of 106,146.
Equities rattled, currencies calm
George Vessey – Lead FX & Macro Strategist
There’s growing confusion around the timing and scale of tariffs to be implemented by the US administration following US President Donald Trump’s cabinet meeting on Wednesday. Trump said that the 25% tariffs on Mexico and Canada would be implemented on April 2, rather than the looming March 4 date. It wasn’t clear if the president meant that he was giving the countries additional time, or got confused with a separate program. Either way, the slew of contradictions has stoked investor skepticism over Trump’s policy agenda.
Equity markets have been rattled in the wake of the ongoing twists and turns in the tariff narrative, with US equities having now wiped out the initial post-election burst. But currencies appear to be taking it in their stride a little more, with realised volatility in G10 FX shrinking of late. Aside from tariff uncertainty, the growth-scare narrative in the US has worsened, which has led to risk-off market conditions . A combination of weaker growth and disinflationary forces will encourage further interest rate cuts at the Federal Reserve (Fed), with markets now pricing two 25 basis point cuts for the year, whereas the expectation was for just one cut two weeks ago.
Meanwhile, in the commodities space, oil prices are trading a multi-month lows having lost around 4% this month as Trump’s aggressive moves on trade triggered anxiety at a time when oil traders were already concerned about lackluster consumption in China. Moreover, hopes for a potential Russia-Ukraine peace deal weighed on the market, as lifting Russian sanctions could increase global oil supply. Commodity FX thus remains under pressure with the Aussie and Canadian dollars trading softer.
Tariff threats losing sting on euro
George Vessey – Lead FX & Macro Strategist
The euro retreated from a one-month high of $1.0528, whilst Germany’s 10-year bond yield fell to 2.44%, near a one-week low, as doubts emerged over a swift increase in European defense spending and its funding through bond issuance. Meanwhile, economic data showed German consumer sentiment unexpectedly weakened heading into March. Plus, US President Trump fired another round of tariff threats overnight, but it hasn’t rattled the euro like one might have expected.
EUR/USD continues to knock on the door of $1.05 but the 100-day moving average located just above this level remains a strong barrier to the upside. Nevertheless the euro appears relatively calm after the latest bout of tariff threats, falling only 50 pips on the news. Trump stated he intends to impose duties of 25% on the European Union without giving any further details on whether those would affect all exports from the bloc or only certain products or sectors. Meanwhile, Germany’s incoming chancellor, Friedrich Merz, ruled out a swift reform of the country’s borrowing limits and said it was too early to determine whether the outgoing parliament could approve a major military spending increase.
Investors will be monitoring the trade and fiscal policy developments closely, but on the macro front today, Spanish inflation data could prove important for clues on where the Eurozone figure will land next week ahead of the European Central Bank (ECB) meeting. Markets expect another 25 basis point rate cut and about 82 bps of ECB easing in total this year. The spread between US and German 10-year yields closed at 181 basis points on Wednesday, near the narrowest since October. It’s set for the biggest monthly decline since May, which has helped support the euro’s modest rebound over the past month.
Sterling’s double edged sword
George Vessey – Lead FX & Macro Strategist
Due to higher interest rates in the UK relative to other G10 peers, the pound’s elevated carry status increases its exposure to equity market fluctuations. The modest uplift in equity markets helped the pound inch higher versus the euro and US dollar on Wednesday, with the former trading just shy of the €1.20 handle. GBP/EUR is up over 1% month-to-date, but is flat on the year, whilst GBP/USD is up over 2% month-to-date and near its highest in two months.
The pound’s yield advantage can be a blessing and a curse though. When markets are in risk-on mode – investors happy to take on more risk for more reward – sterling tends to appreciate, but in deteriorating global risk conditions, the pound becomes more vulnerable. This is amplified by the UK’s worsening net international investment position and persistent current account deficit, which leaves GBP reliant on foreign capital inflows. With this in mind, if we see a bigger drawdown in equity markets, expect the pound to tumble too. Several warning signals are rearing their ugly heads on this front, including bearish investor sentiment surveys and a surge in demand for protection against a stock-market correction.
We can also look at 1-month implied-realized volatility spreads in the FX space to gauge whether the market expects future volatility to be greater than what has been observed historically. From this, we can see traders are paying up for protection in safe havens like the Japanese yen and Swiss franc as they look to hedge against potential shocks from trade policy, geopolitics and political uncertainty.
*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.
Equity markets are stumbling and demand for safe haven currencies is on the rise as investors navigate the shocks from trade policy, geopolitics and political uncertainty. The euro has pulled back from 1-month highs against the US dollar, though remains 1% up year-to-date, whilst the pound is up 2% versus the dollar this month and inching closer to the €1.21 level against the euro – which has been a key resistance mark for the past eight years.
Equities rattled, currencies calm
George Vessey – Lead FX & Macro Strategist
There’s growing confusion around the timing and scale of tariffs to be implemented by the US administration following US President Donald Trump’s cabinet meeting on Wednesday. Trump said that the 25% tariffs on Mexico and Canada would be implemented on April 2, rather than the looming March 4 date. It wasn’t clear if the president meant that he was giving the countries additional time, or got confused with a separate program. Either way, the slew of contradictions has stoked investor skepticism over Trump’s policy agenda.
Equity markets have been rattled in the wake of the ongoing twists and turns in the tariff narrative, with US equities having now wiped out the initial post-election burst. But currencies appear to be taking it in their stride a little more, with realised volatility in G10 FX shrinking of late. Aside from tariff uncertainty, the growth-scare narrative in the US has worsened, which has led to risk-off market conditions . A combination of weaker growth and disinflationary forces will encourage further interest rate cuts at the Federal Reserve (Fed), with markets now pricing two 25 basis point cuts for the year, whereas the expectation was for just one cut two weeks ago.
Meanwhile, in the commodities space, oil prices are trading a multi-month lows having lost around 4% this month as Trump’s aggressive moves on trade triggered anxiety at a time when oil traders were already concerned about lackluster consumption in China. Moreover, hopes for a potential Russia-Ukraine peace deal weighed on the market, as lifting Russian sanctions could increase global oil supply. Commodity FX thus remains under pressure with the Aussie and Canadian dollars trading softer.
Tariff threats losing stingon euro
George Vessey – Lead FX & Macro Strategist
The euro retreated from a one-month high of $1.0528, whilst Germany’s 10-year bond yield fell to 2.44%, near a one-week low, as doubts emerged over a swift increase in European defence spending and its funding through bond issuance. Meanwhile, economic data showed German consumer sentiment unexpectedly weakened heading into March. Plus, US President Trump fired another round of tariff threats overnight, but it hasn’t rattled the euro like one might have expected.
EUR/USD continues to knock on the door of $1.05 but the 100-day moving average located just above this level remains a strong barrier to the upside. Nevertheless the euro appears relatively calm after the latest bout of tariff threats, falling only 50 pips on the news. Trump stated he intends to impose duties of 25% on the European Union without giving any further details on whether those would affect all exports from the bloc or only certain products or sectors. Meanwhile, Germany’s incoming chancellor, Friedrich Merz, ruled out a swift reform of the country’s borrowing limits and said it was too early to determine whether the outgoing parliament could approve a major military spending increase.
Investors will be monitoring the trade and fiscal policy developments closely, but on the macro front today, Spanish inflation data could prove important for clues on where the Eurozone figure will land next week ahead of the European Central Bank (ECB) meeting. Markets expect another 25 basis point rate cut and about 82 bps of ECB easing in total this year. The spread between US and German 10-year yields closed at 181 basis points on Wednesday, near the narrowest since October. It’s set for the biggest monthly decline since May, which has helped support the euro’s modest rebound over the past month.
Sterling’s double edged sword
George Vessey – Lead FX & Macro Strategist
Due to higher interest rates in the UK relative to other G10 peers, the pound’s elevated carry status increases its exposure to equity market fluctuations. The modest uplift in equity markets helped the pound inch higher versus the euro and US dollar on Wednesday, with the former trading just shy of the €1.20 handle. GBP/EUR is up over 1% month-to-date, but is flat on the year, whilst GBP/USD is up over 2% month-to-date and near its highest in two months.
The pound’s yield advantage can be a blessing and a curse though. When markets are in risk-on mode – investors happy to take on more risk for more reward – sterling tends to appreciate, but in deteriorating global risk conditions, the pound becomes more vulnerable. This is amplified by the UK’s worsening net international investment position and persistent current account deficit, which leaves GBP reliant on foreign capital inflows. With this in mind, if we see a bigger drawdown in equity markets, expect the pound to tumble too. Several warning signals are rearing their ugly heads on this front, including bearish investor sentiment surveys and a surge in demand for protection against a stock-market correction.
We can also look at 1-month implied-realized volatility spreads in the FX space to gauge whether the market expects future volatility to be greater than what has been observed historically. From this, we can see traders are paying up for protection in safe havens like the Japanese yen and Swiss franc as they look to hedge against potential shocks from trade policy, geopolitics and political uncertainty.
*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.
Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
US bond yields, crypto lead losses
The Australian dollar and other risk-sensitive currencies were weaker overnight as growth concerns around the US economy continued to weigh.
The US economy has been the clear leader over the last three years but a recent slowdown in key data has sparked fears the US might be facing a slowdown.
In markets, the shift has been most notable in US bond markets, with the US ten-year bond yield dropping from 4.63% to 4.30% in just two weeks.
Cryptocurrency markets have also tumbled with Bitcoin falling from USD106k to USD88k over the last month.
US shares have been less affected with the S&P 500 down only 3.3% from the recent highs but the so-called Magnificent Seven index of leading tech stocks is down 12.4%. since mid-December.
In FX markets, the AUD/USD fell 0.1% as it extended losses from last week’s two-month highs.
The NZD/USD fell 0.2%. The USD/SGD gained 0.2% while USD/CNH was flat.
ECB minutes to test EUR ceiling
This Thursday, the minutes of the most recent European Central Bank meeting will be released.
The January ECB meeting went very smoothly; as anticipated, the guidance remained intact, and the deposit rate was lowered by 25 basis points.
Madam Lagarde did note that the ECB Governing Council thought the neutral rate was slightly higher than pre-pandemic.
After the early-February headline-driven whipsaw, EUR/USD faces resistance around the 1.053 Dec 78.6% retrace, 1.0533 Jan 27 high, and 1.0552 Sep 38.2% retrace.
Following the impulsive decline from the high of 1.1214 on September 25, the Nov-Feb price action now appears to be a possible base pattern, potentially leading to further EUR/USD gains.
In the AUD/EUR, the euro strength could see the AUD/EUR fall below 0.6000. For EUR/SGD wise, it will need to break the 50-day EMA of 1.4069 to be on an upward trend.
BOT hold can’t save fragile THB
We anticipate that the Bank of Thailand will maintain its policy rate at 2.25% today. Since the Bank of Thailand stated that it wishes to maintain the small policy space. In Asia, we expected the BOT will maintain its policy rate at 2.25% today. Any effectiveness of a cut could be diminished during the period of uncertainty and while the MPC continues to assess global policy uncertainty, which is likely to take some time.
However, we anticipate that the BOT will sound dovish in its policy statement by highlighting negative risks to the economic forecast and reiterating its guidance that it is prepared to alter its policy, if needed, which was absent from the last two MPC statements.
In December, we anticipate dissenting votes for a 25bps cut from a unanimous “on hold” conclusion.
We predict a cut in April, but all of these variables should be viewed as dovish outcomes that pave the way for one. USD/THB is currently at its two-month low. The next key resistance for USDTHB to resume its upward trend will be to break the 50-day EMA of 33.95 and 200-day EMA of 34
Global bond yields slide on slowdown worries
Table: seven-day rolling currency trends and trading ranges
*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.
Numerous conflicts plague today’s world, making economic sanctions a valuable tool for dealing with potential threats such as terrorism, illicit trade and human rights abuses. Complying with these sanctions poses many challenges for international companies. However, digital payments and blockchain innovations — such as stablecoins, the increasingly popular decentralized digital asset — have shown promise for navigating the potentially sticky landscape of sanctions compliance.
Sanctions are legal measures that governments impose against specific individuals, entities or countries to curb activities ranging from war and terrorism to money laundering and human rights violations. They are typically enacted by the United Nations, the European Union or the US.
Sanctions aren’t always as clear-cut as banning the sale of weapons to known terrorist organizations. They can apply to many types of transactions, like supply mergers and acquisitions, joint ventures or advisory services. Enforcing these policies is critical to international security. Companies must be careful to comply to avoid significant legal and financial consequences from engaging with an entity cited on any of the ever-changing watchlists.
Sanctions compliance is particularly important in the context of payments. Financial institutions and payment processors play a pivotal role in executing transactions, and it’s essential that these entities do not facilitate transfers to sanctioned parties.
Understanding sanctions compliance
Definition and importance of sanctions compliance
Sanctions compliance refers to the process of adhering to economic sanctions imposed by governments or international organizations on specific countries, entities or individuals. These sanctions restrict or prohibit certain activities, such as trade, investment or financial transactions, to achieve foreign policy or national security goals.
For businesses and financial institutions, avoiding the violation of these restrictions — sanctions compliance — is crucial. Noncompliance can result in significant fines, reputational damage and legal consequences, which demands that companies have robust compliance programs in place.
Britain and France imposed the first modern sanctions during World War I, in an effort to isolate Germany and its allies from the global economy. Since then, sanctions have become increasingly widespread, with the US, EU and other countries imposing their own sanctions regimes.
The rise of globalization and international trade has added layers of complexity to sanctions compliance. Companies must navigate a web of national and international regulations to avoid inadvertently violating sanctions. This evolution has made sanctions compliance a challenging but vital aspect of global business operations.
Key players in sanctions compliance
Sanctions compliance involves a range of key players, each with specific roles and responsibilities:
Governments and international organizations: These entities impose and enforce sanctions, providing guidance on compliance requirements. They play a crucial role in shaping the regulatory landscape.
Financial institutions: Banks, payment processors and other financial institutions are at the forefront of sanctions compliance. They are responsible for screening transactions and identifying potential sanctions risks, making their role vital in the compliance ecosystem.
Businesses: Companies must ensure that their operations, including international trade, investment and financial transactions, comply with sanctions regulations. This requires a thorough understanding of the sanctions landscape and proactive risk management.
Regulators: Regulatory bodies, such as theUS Office of Foreign Assets Control (OFAC), enforce sanctions compliance and issue fines for noncompliance. Their scrutiny ensures that institutions adhere to the regulatory obligations.
By understanding the roles of these key players, businesses and financial institutions can better navigate the complexities of sanctions compliance and avoid the severe consequences of noncompliance.
Types of sanctions
Sanctions can take several forms, each targeting a different aspect of the sanctioned party’s activities. The most common types include:
Comprehensive sanctions: These are typically imposed on entire countries or governments. They restrict almost all forms of trade, finance and interaction with the sanctioned country.
Sectoral sanctions: These target specific sectors of a country’s economy, such as finance, energy or defense. They might prohibit specific types of transactions or financial dealings with particular industries within a sanctioned country.
List-based sanctions: These sanctions are imposed on individuals, entities or organizations that are identified on official lists. They often include asset freezes and prohibitions on business dealings.
Embargoes: These are broad restrictions that can prohibit trade, investment and financial transactions with specific countries or regions.
Secondary sanctions: These are penalties imposed on non-US entities for doing business with countries or entities that are already under US sanctions. These can be especially challenging for companies with global operations.
Understanding the different types of sanctions is critical to managing sanctions risk, especially when conducting cross-border payments or transactions with foreign entities.
The state of sanctions compliance
Sanctions compliance has become increasingly important and complex in recent years. Financial institutions, corporations and fintech companies must carefully navigate a maze of national and international regulations to ensure they don’t inadvertently violate sanctions laws.
The impact of these regulations on business operations and compliance activities cannot be overstated. The challenges of sanctions compliance are multifaceted, ranging from the sheer volume and global reach of sanctions to the sophistication of noncompliant actors who attempt to circumvent restrictions.
The complexity is compounded by the fast-evolving landscape of digital currencies and decentralized finance, including stablecoins, offering new rails for cross-border payments while raising questions about how they fit into existing regulatory frameworks.
Sanctions compliance challenges
Sanctions compliance has become increasingly complex due to several factors.
One of the primary challenges is the sheer number of global sanctions. To identify and prevent dealings with sanctioned entities before they happen, organizations must deploy such tactics as checking transactions, customers, counterparties and business partners against sanctions lists from:
Office of Foreign Asset Control sanctions: The US Treasury’s OFAC sanctions list is one of the most widely followed. It includes hundreds of individuals, organizations and countries that are prohibited from engaging in business with US companies.
European Union sanctions: The EU maintains its own sanctions lists. Tracking both sets of restrictions can be difficult for companies operating in multiple regions.
Keeping track of these lists is a daunting task, as they frequently change, with new names and countries added and others removed.
A secondary challenge is the complexity of sanctions regulations. As noted byKPMG, the regulatory landscape is constantly evolving, and navigating these rules requires businesses to be proactive. The compliance burden is especially heavy for financial institutions that must check a large number of transactions against multiple sanctions lists in real time.
Another major issue is the difficulty of conducting Know Your Customer (KYC) checks in a comprehensive and accurate manner — and applying those standards to other types of business relationships, such as suppliers, advisors, lenders or joint venture partners.
Identifying sanctioned entities or individuals can be challenging due to the constantly shifting nature of the global economy. Fraudsters and other bad actors are becoming more sophisticated in their attempts to bypass sanctions, often utilizing shell companies, fake identities and cryptocurrencies to obscure the true nature of transactions.
Penalties for doing business with a sanctioned entity can range from millions to billions of dollars, depending on the severity of the violation. A robust sanctions compliance program is essential to mitigate these risks.
The role of blockchain and stablecoins in sanctions compliance
The proliferation of fintech solutions in the cross-border payments industry can be a double-edged sword when it comes to sanctions compliance.
While funds can transfer through a digital blockchain to maintain transparency and vet potential bad actors, they can also be used to facilitate undetectable transactions.
What is a stablecoin?
Stablecoins enable seamless global transactions without traditionalbanking intermediaries. This cryptocurrency is pegged to hard currencies such as the US dollar or euro, giving it a more reliable value than other cryptocurrencies, which can fluctuate drastically.
Mainly, stablecoins are used to trade other crypto assets, but they play a vital role in the cryptocurrency ecosystem as their use cases expand internationally. For example, people in countries with weak currencies can seek a steady and transferable substitute to their local money, enabling global access to the financial services industry and promoting financial inclusion.
Stablecoins transforming the financial services industry
Even if the US does not take action to regulate the use of stablecoins or blockchain technology, stablecoins are likely to grow in popularity among cross-border companies because many other jurisdictions are creating frameworks to license them, including EU, the UK, Japan, Singapore and the UAE.
According to the Brookings Institute, upcoming regulations may require stablecoin issuers to maintain reserves, capital and liquidity levels; set reporting and disclosure standards; and ensure that holders’ claims take priority over issuer debt or other claims. Additionally, stablecoin issuers may be compelled to monitor blockchains for suspicious transactions and possibly freeze the digital currency if the transaction is flagged for noncompliance with sanctions.
One such set of regulations came from the European Parliament in 2023 when it approved the Markets in Crypto-Assets (MiCA) policy following the fall of FTX. MiCA is designed to ensure a level playing field for crypto investors, and it offers some guidance on how to prevent cross-border payments from being noncompliant with international sanctions.
Ensuring sanctions compliance amid the rise of stablecoins
The emergence of stablecoins has introduced new challenges for sanctions compliance. Stablecoins facilitate quick and often anonymous cross-border transactions, which can be used to evade sanctions. This creates significant risks for sanctions compliance, as stablecoins may be exploited to circumvent restrictions or engage in illicit activities. Consequently, regulators are increasingly scrutinizing stablecoins and their interaction with sanctions.
To ensure sanctions compliance in the context of stablecoins, businesses and financial institutions must adopt a proactive approach. This includes conducting regular risk assessments, implementing effective screening and monitoring systems and providing comprehensive training to employees on compliance requirements. Additionally, staying informed about evolving regulations and collaborating with regulators can help institutions manage the risks associated with this digital currency.
By taking these steps, businesses and financial institutions can protect themselves from the risks of sanctions noncompliance and create a competitive advantage in the global marketplace. Understanding and managing the challenges posed by stablecoins is essential for maintaining robust sanctions compliance in today’s digital age.
How can stablecoins help with sanctions compliance?
In addition to providing an efficient alternative to traditional remittance systems that can be costly and slow, stablecoins offer new ways to ensure compliance. Blockchain’s transparent and immutable nature allows for real-time tracking of transactions, making it easier to trace the flow of funds and identify potential violations.
Leveraging blockchain technology in sanctions compliance can provide an additional layer of oversight, helping companies spot suspicious transactions before they occur.
According to Brookings, regulatory bodies are closely monitoring the national security risks associated with these digital assets. The transparency and traceability of blockchain transactions, coupled with regulatory frameworks, can help combat illicit activity and ensure that stablecoins are not being used to bypass sanctions.
Regulatory technology to manage regulatory obligations
What is regtech?
Looking forward, regtech — the use of technology to enhance regulatory compliance — will be pivotal in managing sanctions risks.
Regtech tools are meant to help protect against risks including market abuse, cyber attacks and fraud. Financial institutions and regulators use them to deal with complicated compliance processes.
Regulatory technology reduces risk by offering data on money-laundering activities conducted online and by monitoring online transactions in real time to identify issues or irregularities.
Regtech tools can automate many of the tasks involved in sanctions compliance, including screening, regulatory monitoring and reporting. Using AI and machine learning, these tools can process a high volume of data at incredible speeds, enabling quick analysis and insights for compliance.
These technologies can also help organizations stay up-to-date with the latest regulations.
The future of sanctions compliance
Europe’s MiCA regulations are expected to bring greater clarity and structure to the regulation of cryptocurrencies, including stablecoins. According to Boston Consulting Group, MiCA aims to provide a comprehensive regulatory framework for digital assets, ensuring that companies operating in the crypto space adhere to anti-money laundering and counter-terrorism financing regulations.
In addition to MiCA, governments worldwide are expected to continue strengthening their sanctions enforcement efforts. The use of digital assets and blockchain technology in payments will only increase, making it essential for businesses to stay ahead of the regulatory curve.
The US is particularly interesting as a new administration is settling in with a pro-crypto agenda and promises to toughen policies governing foreign trade.
The future of sanctions compliance will undoubtedly be shaped by advancements in regtech and the tightening of regulatory frameworks like MiCA, offering both challenges and opportunities for businesses in the digital age. By building a comprehensive and effective compliance program, businesses can protect themselves from the severe consequences of noncompliance while contributing to the broader goal of global security.
Want more insights on the topics shaping the future of cross-border payments? Tune in toConverge, with new episodes every Wednesday.
US stocks closed at a five-week low and bonds soared yesterday as another disappointing reading on the US consumer fuelled concern about the health of the world’s largest economy. The US dollar index also retreated after US Secretary of the Treasury Scott Bessent said that US yields and the dollar will drop lower due to the Trump policy even if the Federal Reserve (Fed) keeps rates on hold. However, both the dollar and Treasury futures have gone into reverse after House Republicans passed a budget blueprint, paving the way for $4.5 trillion in tax cuts.
The twists and turns in macro and political developments are keeping investors on edge and financial markets volatile. The growth-scare narrative in the US worsened on Tuesday as a closely watched measure of consumer confidence fell by the most since August 2021 in February on concerns about the outlook for the broader economy. That prompted traders to boost bets on Fed rate cuts this year even as inflation pressures seem to be intensifying. Treasury yields fell to their lowest levels in 2025. A gauge of megacaps extended a plunge from its peak to more than 10%, Bitcoin and the wider crypto-market suffered substantial losses and the US dollar index closed below its 100-day moving average for the first time since October 2024. A lot of the sudden moves look to be part of a reversal in the Trump trade and a growing narrative of softening consumption in the US driving Fed easing bets.
However, the tax cut plans have halted the slide in equities and the dollar, whilst Treasuries have steadied. Republicans have defended the cuts, insisting they will stimulate economic growth and, along with other Trump measures such as tariffs, limit increases to the deficit. The refocus on fiscal matters might help the dollar temporarily and divert attention from weak consumer activity until tariffs become a priority again next week.
Euro faltering at $1.05
George Vessey – Lead FX & Macro Strategist
The euro has staged a prominent appreciation against the US dollar in February, despite having fallen to an over 2-year low earlier in the month. EUR/USD has risen around 4% from near $1.01 to testing the key psychological (and resistance) handle of $1.05, though still six cents below its 5-year average.
A cyclically-driven turn in the US dollar has been noteworthy, with soft US economic data disappointing, helping EUR/USD rebound, but hard data remains robust for now. Reports of a possible peace agreement in Ukraine is also seen as providing a modest boost to EU economies, mainly due to higher military spending prompted by increased security fears, plus lower gas prices alleviating energy cost concerns and providing further support to the euro. Tariff fatigue also set in, allowing risk appetite to improve, aiding the pro-cyclical euro. Germany’s election results, despite bringing relief, has so far failed to enhance the euro’s uplift meaningfully though.
Stability in rates markets has also failed to boost the euro. The inverse relationship EUR/USD usually has with the MOVE index (volatility in fixed income), decoupled around the US election. The index is down around 16% since then and was recently trading near its lowest levels since early 2022. All else being equal, EUR/USD should’ve risen above $1.10.
But of course a huge variety of variables drive FX, and the weight those variables have on currencies often fluctuates. As a result, EUR/USD’s struggle to convincingly break north of $1.05 of late implies that hopes of sustained rally might be pinned more on a substantial turn in the US economy, though predicting the timing on that front is difficult.
Pound lacking fresh catalyst against euro
George Vessey – Lead FX & Macro Strategist
Sterling rallied to near its highest level of 2025 against the euro last week, and remains over two cents above its year-to-date low of €1.18 and well above its 5-year average of €1.16. GBP/EUR has been in a steady, healthy, uptrend for the best part of two years, enduring just six months of modest losses over this period and gaining almost 8% overall. There are some reasons to expect more gains over the course of 2025, but the absence of a fresh positive catalyst could limit upside potential.
Though excess euro pessimism is arguably here, the euro domestic context, both cyclical and political, remains euro-negative at this stage. Although the UK economy is expected to grow only ~1% this year, recent activity data has been more upbeat. Meanwhile, the Eurozone economy is expected to grow around 0.9%, with stronger US protectionism limiting growth in both regions. If and how US President Trump delivers on his tariff threats remains to be seen, but the UK should fare better than the Eurozone under most scenarios given the majority of UK sales to the US are services. Political uncertainty is also higher across Europe versus the UK, though the German election result has boosted hopes of pro-growth structural changes in Europe’s largest economy. The most significant bullish factor supporting GBP/EUR though is interest rate differentials. The European Central Bank is likely to cut interest rates more than the Bank of England (BoE) this year. Still-elevated UK wage growth and services inflation supports this assumption. That said, this is likely priced into the exchange rate and in fact, the real rate differential (taking into account inflation) suggests €1.19 is a fairer value.
So, where to next for sterling versus the euro? Barring any major deviations in the above (slightly stronger UK growth, less political uncertainty and fewer BoE rate cuts), GBP/EUR should remain supported and we don’t see a major trend reversal occurring anytime soon. However, the pair continues to bump into resistance around €1.21, which is near the upper limit of the post-Brexit vote range since 2016. We need a decisive break above here to establish a new higher trading range.
*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.
Despite weaker-than-expected US consumer confidence and macro data softening the US Dollar, the Loonie remains tied to tariff news, gradually approaching the 1.435 level. Throughout the week, markets have been flooded with President Trump headlines, causing uncertainty around his policies and driving investors towards safe-havens. The yield on the US 10-year Treasury note fell 10 basis points to 4.3% yesterday, its lowest level since mid-December, and WTI oil dropped below $70 a barrel. FX markets seem more resistant to tariff news for now, awaiting clearer direction before March 4th. The Loonie however, is the pivotal gauge amidst tariff discussions. Speculation about another push towards April 1st has grown, but Trump’s recent remarks keep investors guessing.
Separately, the Conference Board’s US consumer confidence index hit its lowest level in February since September 2024, sparking renewed fears of an economic slowdown. Recent US macro data suggests a slowdown rather than a recession. Last week’s weaker housing starts and existing home sales figures followed a similar trend in retail sales from the previous week. More significantly, the Services PMI dropped below the critical 50 mark, signaling stronger economic weakening, as the services sector accounts for about 60% of US GDP. The latest University of Michigan survey also shows a decline in consumer confidence. Policy uncertainties, especially regarding tariffs and potential government layoffs, seem to be impacting economic momentum. This might be the first time in a while that markets haven’t shrugged off bad economic news, as growth becomes the focus and investors reassess the impact of Trump’s administration policies on the economy.
Today’s data calendar is relatively quiet in both the US and Canada. News around fiscal policies and tariffs from the US will be the focus. In the US, the House of Representatives has passed a budget proposal bill that sets the stage for approximately $4 trillion in tax cuts. While it doesn’t specify changes to individual spending or revenue plans, it suggests a $2 trillion reduction in Medicaid spending. Additionally, the bill aims to raise the debt ceiling by $4 trillion, thus delaying the risk of a government shutdown.
Trump’s tax plans optimism
George Vessey – Lead FX & Macro Strategist
US stocks closed at a five-week low and bonds soared yesterday as another disappointing reading on the US consumer fuelled concern about the health of the world’s largest economy. The US dollar index also retreated after US Secretary of the Treasury Scott Bessent said that US yields and the dollar will drop lower due to the Trump policy even if the Federal Reserve (Fed) keeps rates on hold. However, both the dollar and Treasury futures have gone into reverse after House Republicans passed a budget blueprint, paving the way for $4.5 trillion in tax cuts.
The twists and turns in macro and political developments are keeping investors on edge and financial markets volatile. The growth-scare narrative in the US worsened on Tuesday as a closely watched measure of consumer confidence fell by the most since August 2021 in February on concerns about the outlook for the broader economy. That prompted traders to boost bets on Fed rate cuts this year even as inflation pressures seem to be intensifying. Treasury yields fell to their lowest levels in 2025. A gauge of megacaps extended a plunge from its peak to more than 10%, Bitcoin and the wider crypto-market suffered substantial losses and the US dollar index closed below its 100-day moving average for the first time since October 2024. A lot of the sudden moves look to be part of a reversal in the Trump trade and a growing narrative of softening consumption in the US driving Fed easing bets.
However, the tax cut plans have halted the slide in equities and the dollar, whilst Treasuries have steadied. Republicans have defended the cuts, insisting they will stimulate economic growth and, along with other Trump measures such as tariffs, limit increases to the deficit. The refocus on fiscal matters might help the dollar temporarily and divert attention from weak consumer activity until tariffs become a priority again next week.
Euro faltering at $1.05
George Vessey – Lead FX & Macro Strategist
The euro has staged a prominent appreciation against the US dollar in February, despite having fallen to an over 2-year low earlier in the month. EUR/USD has risen around 4% from near $1.01 to testing the key psychological (and resistance) handle of $1.05, though still six cents below its 5-year average.
A cyclically-driven turn in the US dollar has been noteworthy, with soft US economic data disappointing, helping EUR/USD rebound, but hard data remains robust for now. Reports of a possible peace agreement in Ukraine is also seen as providing a modest boost to EU economies, mainly due to higher military spending prompted by increased security fears, plus lower gas prices alleviating energy cost concerns and providing further support to the euro. Tariff fatigue also set in, allowing risk appetite to improve, aiding the pro-cyclical euro. Germany’s election results, despite bringing relief, has so far failed to enhance the euro’s uplift meaningfully though.
Stability in rates markets has also failed to boost the euro. The inverse relationship EUR/USD usually has with the MOVE index (volatility in fixed income), decoupled around the US election. The index is down around 16% since then and was recently trading near its lowest levels since early 2022. All else being equal, EUR/USD should’ve risen above $1.10.
But of course a huge variety of variables drive FX, and the weight those variables have on currencies often fluctuates. As a result, EUR/USD’s struggle to convincingly break north of $1.05 of late implies that hopes of sustained rally might be pinned more on a substantial turn in the US economy, though predicting the timing on that front is difficult.
Pound lacking fresh catalyst against euro
George Vessey – Lead FX & Macro Strategist
Sterling rallied to near its highest level of 2025 against the euro last week, and remains over two cents above its year-to-date low of €1.18 and well above its 5-year average of €1.16. GBP/EUR has been in a steady, healthy, uptrend for the best part of two years, enduring just six months of modest losses over this period and gaining almost 8% overall. There are some reasons to expect more gains over the course of 2025, but the absence of a fresh positive catalyst could limit upside potential.
Though excess euro pessimism is arguably here, the euro domestic context, both cyclical and political, remains euro-negative at this stage. Although the UK economy is expected to grow only ~1% this year, recent activity data has been more upbeat. Meanwhile, the Eurozone economy is expected to grow around 0.9%, with stronger US protectionism limiting growth in both regions. If and how US President Trump delivers on his tariff threats remains to be seen, but the UK should fare better than the Eurozone under most scenarios given the majority of UK sales to the US are services. Political uncertainty is also higher across Europe versus the UK, though the German election result has boosted hopes of pro-growth structural changes in Europe’s largest economy. The most significant bullish factor supporting GBP/EUR though is interest rate differentials. The European Central Bank is likely to cut interest rates more than the Bank of England (BoE) this year. Still-elevated UK wage growth and services inflation supports this assumption. That said, this is likely priced into the exchange rate and in fact, the real rate differential (taking into account inflation) suggests €1.19 is a fairer value.
So, where to next for sterling versus the euro? Barring any major deviations in the above (slightly stronger UK growth, less political uncertainty and fewer BoE rate cuts), GBP/EUR should remain supported and we don’t see a major trend reversal occurring anytime soon. However, the pair continues to bump into resistance around €1.21, which is near the upper limit of the post-Brexit vote range since 2016. We need a decisive break above here to establish a new higher trading range.
*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.
