Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
Aussie plunges after February jobs report
The Australian dollar was sharply lower yesterday after the February employment report missed expectations.
The Australian employment market saw a loss of 52.8k jobs, a massive variance from the 30k growth expected, while the unemployment rate held steady at 4.1%.
The Aussie tumbled on the news, again rejecting the major resistance level at 0.6400, with the AUD/USD falling 0.9% for the day.
The Aussie fell versus most other currencies, down almost 1.0% versus the Japanese yen, but climbed versus the New Zealand dollar.
Greenback rebounds post-Fed, moves into short-term uptrend
Overnight, US sharemarkets were down moderately as investors digested this week’s Federal Reserve decision.
The S&P 500 fell 0.2% while the tech-focused Nasdaq dropped 0.3%.
The US dollar was strongly higher as markets digested the gloomier outlook from the Fed after the central bank raised inflation forecasts and lowered growth forecasts.
The USD index extended its rebound from five-month highs and moved into a short-term uptrend – potentially signalling further gains for the greenback.
The NZD saw the largest losses versus the USD overnight with the NZD/USD down 1.1%.
In Asia, the USD/SGD gained 0.3% while USD/CNH also gained 0.3% with both markets climbing from key support at the four-month lows.
British pound higher after BoE
In Europe, the focus was on last night’s Bank of England decision to keep interest rates on hold at 4.50%.
However, the voting pattern split – at 8-1 versus the 7-2 expected – means that markets believe the BoE is now less likely to cut and has supported the GBP.
The British pound continues to outperform since the GBP/USD formed a bottom in mid-January.
The AUD/GBP hit a new five-year low overnight, NZD/GBP is nearing a ten-year lows while GBP/SGD reached a nine-month high.
Aussie hit hard post jobs
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.
The FOMC press release and Chair Powell’s press conference yesterday delivered critical insights that set the tone for market reaction. Powell highlighted the challenges posed by tariffs, noting their potential to delay progress in curbing inflation, while also emphasizing the difficulty of gauging the real impact of trade and fiscal policies on economic data. He reiterated that it remains too soon to draw concrete conclusions on how fiscal austerity and tariffs will shape inflation and growth. Crucially, Powell distinguished between tariff-driven and non-tariff inflation, with both influencing Core PCE and Core PCI projections. Adding to the cautious outlook, the FOMC lowered its GDP projections. Despite FOMC’s latest projections suggesting a shift towards stagflationary dynamics, markets maintained a positive stance, as major U.S. equity indices rallied in response to the Fed’s confirmation that two rate cuts are still on the table this year, offering a silver lining to an otherwise complex economic narrative.
The USD/CAD has been remarkably stable throughout this week. Navigating a drama-free tariff environment, hotter-than-expected CPI data, and the post-Fed meeting boost, the pair has been trading within a range of 1.439 to 1.427. In the last few hours, it’s pushed higher due to dollar strength in the back of higher for longer U.S. rates.
The Canadian dollar’s implied volatility remains the lowest among G10 currencies, averaging just 6.7% since 2020—well below the G10 average of 9.4%—and signaling a notable calm amidst global economic uncertainty. This steadiness is expected to persist until April 2nd, when the U.S. unveils critical trade policy decisions and Canada contemplates possible retaliatory measures. In the meantime, the pair is forecast to remain range-bound between 1.41 and 1.45, reflective of a market adopting a wait-and-see approach.
For Canada and the Loonie, the lingering question revolves around the longevity of U.S. tariffs and the country’s potential response. With USMCA/CUSMA renegotiations until mid-2026, Canada’s immediate priority lies in securing tariff exemptions quickly and effectively. There’s also growing speculation about the role critical minerals might play in these discussions, given the heightened interest from the U.S. administration. The evolving trade landscape will undoubtedly serve as a critical focal point for both economies, and the Loonie in the weeks ahead.
Best Fed day for stocks since July ‘22
Boris Kovacevic – Global Macro Strategist
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 on track for its best Fed decision day since July 2022, and the Nasdaq soaring as tech stocks led the charge.
The Fed’s decision to slow the pace of balance sheet reduction added to the positive sentiment, fueling hopes of higher liquidity ahead. While Chair Jerome Powell emphasized uncertainty around the economic outlook, especially regarding tariffs and their impact on inflation, 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. Still, Powell’s statement that economic uncertainty has increased suggests that the central bank remains data-dependent, and future policy moves will hinge on how inflation and employment trends evolve in the coming months.
Meanwhile, geopolitical developments added to market optimism. President Trump and Ukrainian President Zelenskiy signaled progress toward a ceasefire, with Ukraine agreeing to halt strikes on energy infrastructure as an initial step in negotiations. Trump described his latest call with Zelenskiy as “very good,” while US officials highlighted growing cooperation on air defense support.
The news helped sustain the risk-on mood, adding to the dollar’s volatility. The greenback initially weakened as risk appetite surged, but it later rebounded. The Greenback 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. With the Fed’s decision behind us, markets will now turn their attention to economic indicators to gauge whether the optimism in risk assets can be sustained or if volatility will make a swift return.
Euro slips below $1.09
Boris Kovacevic – Global Macro Strategist
The euro’s rally lost steam on Wednesday as EUR/USD recorded its worst daily drop in March, slipping back below the $1.09 level. While the pair remains on track for a third consecutive weekly gain, broader market sentiment and developments in the US took center stage, overshadowing any euro-specific drivers.
The Fed’s decision to keep rates unchanged and maintain its forecast for two rate cuts this year initially fueled a risk-on rally, but a stronger dollar later emerged as traders reassessed the Fed’s cautious stance. Meanwhile, signs of progress toward a ceasefire in Ukraine added another layer of complexity, bolstering sentiment but also creating fresh uncertainty over Europe’s economic and energy outlook.
German bond yields edged lower as investors digested the Fed’s more measured approach, but rising expectations for a hawkish hold from the European Central Bank in April continue to provide underlying support for the euro. With Germany’s fiscal expansion still in focus and set to pass key parliamentary hurdles, the bloc’s growth prospects are looking more stable, which could help limit downside risks for the single currency.
However, rising trade tensions with the US remain a headwind. Trump’s latest tariff threats against European wine and industrial goods, along with his renewed criticism of the EU’s trade practices, have cast a shadow over the euro’s resilience. For now, EUR/USD remains caught in the broader tug-of-war between a patient Fed and European fiscal optimism.
BoE priced to stay on hold
George Vessey – Lead FX & Macro Strategist
The British pound continues to flirt with the $1.30 handle versus the US dollar, but has reclaimed €1.19 against the euro as traders await in anticipation the Bank of England’s (BoE) rate decision today. The UK labour market report published this morning largely came in line with estimates, with wage growth still elevated and the unemployment rate steady at 4.4%.
The BoE’s well-established cut-hold tempo (one cut per quarter) means it’s highly unlikely the Bank rate will move from 4.5% today. We don’t’ expect a major market reaction either because an unchanged decision is fully expected by markets. However, eyes will be on the vote split amongst policymakers, particularly if Alan Taylor joins the previous dissenters and votes for another cut.
Perhaps the biggest shock in February was the 7-2 vote split which saw Catherine Mann switch from being the most hawkish member to among the most dovish and she joined Swati Dhingra in voting for a larger 50 basis point cut. It’s therefore likely these two will dissent again today, but Mr Taylor could join the party given he voted for back-to-back cuts in December and has since cited that weak demand was the dominant factor in the inflation outlook. However, most of the committee seem concerned that supply weakness will cause pay growth and inflation to remain higher for longer. Indeed, private sector wage growth remains above 6%, while services inflation is bouncing around 5%, which complicates the BoE’s job amidst a stagnating economy. So, for now, we don’t think that we’ve seen enough in the data that would warrant a dramatic shift in the bank’s guidance. The BoE will likely stick to its cautious approach, also weighing the evolution of global shocks such as trade tariffs or developments in the Middle East that could impact some prices.
The UK budget event later this month might be the bigger risk to the pound as Chancellor Rachel Reeves may either slash spending, raise taxes or risk unnerving the gilt market. As such, the short-term outlook for the pound might be skewed to the downside in our opinion, but global uncertainties make for a low conviction.
*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.
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 on track for its best Fed decision day since July 2022, and the Nasdaq soaring as tech stocks led the charge.
The Fed’s decision to slow the pace of balance sheet reduction added to the positive sentiment, fueling hopes of higher liquidity ahead. While Chair Jerome Powell emphasized uncertainty around the economic outlook, especially regarding tariffs and their impact on inflation, 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. Still, Powell’s statement that economic uncertainty has increased suggests that the central bank remains data-dependent, and future policy moves will hinge on how inflation and employment trends evolve in the coming months.
Meanwhile, geopolitical developments added to market optimism. President Trump and Ukrainian President Zelenskiy signaled progress toward a ceasefire, with Ukraine agreeing to halt strikes on energy infrastructure as an initial step in negotiations. Trump described his latest call with Zelenskiy as “very good,” while US officials highlighted growing cooperation on air defense support.
The news helped sustain the risk-on mood, adding to the dollar’s volatility. The greenback initially weakened as risk appetite surged, but it later rebounded. The Greenback 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. With the Fed’s decision behind us, markets will now turn their attention to economic indicators to gauge whether the optimism in risk assets can be sustained or if volatility will make a swift return.
Euro slips below $1.09
Boris Kovacevic – Global Macro Strategist
The euro’s rally lost steam on Wednesday as EUR/USD recorded its worst daily drop in March, slipping back below the $1.09 level. While the pair remains on track for a third consecutive weekly gain, broader market sentiment and developments in the US took center stage, overshadowing any euro-specific drivers.
The Fed’s decision to keep rates unchanged and maintain its forecast for two rate cuts this year initially fueled a risk-on rally, but a stronger dollar later emerged as traders reassessed the Fed’s cautious stance. Meanwhile, signs of progress toward a ceasefire in Ukraine added another layer of complexity, bolstering sentiment but also creating fresh uncertainty over Europe’s economic and energy outlook.
German bond yields edged lower as investors digested the Fed’s more measured approach, but rising expectations for a hawkish hold from the European Central Bank in April continue to provide underlying support for the euro. With Germany’s fiscal expansion still in focus and set to pass key parliamentary hurdles, the bloc’s growth prospects are looking more stable, which could help limit downside risks for the single currency.
However, rising trade tensions with the US remain a headwind. Trump’s latest tariff threats against European wine and industrial goods, along with his renewed criticism of the EU’s trade practices, have cast a shadow over the euro’s resilience. For now, EUR/USD remains caught in the broader tug-of-war between a patient Fed and European fiscal optimism.
BoE priced to stay on hold
George Vessey – Lead FX & Macro Strategist
The British pound continues to flirt with the $1.30 handle versus the US dollar, but has reclaimed €1.19 against the euro as traders await in anticipation the Bank of England’s (BoE) rate decision today. The UK labour market report published this morning largely came in line with estimates, with wage growth still elevated and the unemployment rate steady at 4.4%.
The BoE’s well-established cut-hold tempo (one cut per quarter) means it’s highly unlikely the Bank rate will move from 4.5% today. We don’t’ expect a major market reaction either because an unchanged decision is fully expected by markets. However, eyes will be on the vote split amongst policymakers, particularly if Alan Taylor joins the previous dissenters and votes for another cut.
Perhaps the biggest shock in February was the 7-2 vote split which saw Catherine Mann switch from being the most hawkish member to among the most dovish and she joined Swati Dhingra in voting for a larger 50 basis point cut. It’s therefore likely these two will dissent again today, but Mr Taylor could join the party given he voted for back-to-back cuts in December and has since cited that weak demand was the dominant factor in the inflation outlook. However, most of the committee seem concerned that supply weakness will cause pay growth and inflation to remain higher for longer. Indeed, private sector wage growth remains above 6%, while services inflation is bouncing around 5%, which complicates the BoE’s job amidst a stagnating economy. So, for now, we don’t think that we’ve seen enough in the data that would warrant a dramatic shift in the bank’s guidance. The BoE will likely stick to its cautious approach, also weighing the evolution of global shocks such as trade tariffs or developments in the Middle East that could impact some prices.
The UK budget event later this month might be the bigger risk to the pound as Chancellor Rachel Reeves may either slash spending, raise taxes or risk unnerving the gilt market. As such, the short-term outlook for the pound might be skewed to the downside in our opinion, but global uncertainties make for a low conviction.
*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.
US equities and the US dollar continue to erase post-election gains, with the latter now down almost 4% against a basket of major currencies. Both the pound and euro remain close to year-to-date highs but are in overbought territory. The Japanese yen is volatile this morning in the wake of the Bank of Japan’s decision to keep rates unchanged, and investors await the Fed’s decision later today for more guidance on the pace and timing of rate cuts in the US.
Equity rout continues pre-Fed
Boris Kovacevic – Global Macro Strategist
Hopes of a continued equity rebound have stalled for now, with investors stepping away from risk assets ahead of today’s Federal Reserve (Fed) decision. The bar for rate cuts has crept higher, driven by concerns that inflation remains uncomfortably sticky. Selling resumed on Wall Street with the largest technology names being hit the hardest.
The S&P 500 fell, dragged lower by megacaps hitting their lowest levels since September. Meta officially turned negative for the year, becoming the last of the so-called Magnificent Seven stocks to erase year-to-date gains. The dollar is once again nearing its lowest level since October, having fallen against the euro and pound in yesterday’s session.
Market participants widely expect the Fed to hold rates steady, leaving the focus on updated economic projections and Chair Jerome Powell’s press conference. Policymakers have signaled a data dependent neutral stance, looking for more evidence of disinflation and greater clarity on the impact of Trump’s policies. Uncertainty surrounding trade has left markets on edge, with investors struggling to price in the full effects of tariffs that appear to change by the week.
Recent data has painted a mixed picture. A stronger-than-expected rebound in single-family housing starts and resilient industrial output have provided some reassurance that the US economy isn’t on the verge of a recession. However, hotter-than-expected import prices added to concerns about inflation becoming entrenched, further complicating the Fed’s path.
Despite softer risk sentiment, the greenback has struggled to capitalize on safe-haven flows, reflecting investor unease over the longer-term impact of Trump’s policies. With Powell set to address the press later today, markets will be watching for any hints about the timing of future cuts. Any signal that rates could remain high for longer may give the dollar a short-term boost, while a more dovish tilt could reignite pressure on the currency.
European confidence making a comeback
George Vessey – Lead FX & Macro Strategist
The outlook is brightening across Europe, buoyed by hopes of Ukraine ceasefire and the passage of a landmark spending package in Germany’s parliament. European equities have outperformed their US counterparts year-to-date, most notably with the German DAX up 17%. The euro is also over 5% stronger than the dollar this year and investors are becoming more optimistic about the future.
Germany’s ZEW Indicator of Economic Sentiment jumped to 51.6 in March, the highest level in over three years, compared to 26 in the previous month and forecasts of 48.1. The last time the indicator increased this substantially was in January 2023. The assessment of the current economic situation remains stable, but it’s the expectations index that depicts the positive impact surrounding Germany’s fiscal policy, including the agreement on a multibillion-euro financial package for the federal budget. Digging into the details, investors’ expectations of rising inflation has risen to the highest level since 2022. Moreover, while over 60% of respondents still expect interest rates to fall, the proportion has sharply dropped from its 1-year average of 80%. This likely reflects the anticipated effects of fiscal loosening and monetary tightening.
Such conditions should be supportive for the common currency, which continues to hold onto the $1.09 handle and well above its 200-day moving average support nearer $1.07. The Fed’s meeting today could inject fresh directional impetus for the pair, but in overbought territory according to the 14-day relative strength index, we’re dubious of further gains in the very short term.
Profit-taking risk ahead of BoE
George Vessey – Lead FX & Macro Strategist
The pound briefly peered above the $1.30 handle yesterday as the US dollar weakened across the board. However, GBP/USD failed to hold above this key level in sign of exhaustion to the upside as several technical indictors are flashing “overbought”. The prospect of a meaningful pullback cannot be discounted in the coming weeks if the pound continues to stall around these levels.
Market participants might also look be looking to sell sterling ahead of Thursday’s Bank of England (BoE) decision, which recent history shows tends to weigh on the UK currency. Although a dovish Fed might jolt the dollar lower today, traders may look to take profit on the more than 7% uplift in GBP/USD since early February. Looking further down the line, the $1.35 mark could be a key level to target to the upside though 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. GBP/USD has been under $1.35 now for over two years – its longest ever stint below this level. But should the pair hold above $1.30, bullish traders will likely be eying $1.35 as an upside target later this year. From a technical perspective though, we think the 14-day relative strength index being near to or in overbought territory for most of this month suggests a correction lower might be looming in the very short-term before a resumption of the uptrend takes hold.
On the flipside, sterling’s outlook versus the euro doesn’t look so rosy. The bullish narrative we were pushing last month has been turned on its head since Germany’s decision to boost expenditure, which is viewed as a significant moment for the entire European economy and its growth outlook. We see €1.1740 as a key downside target if GBP/EUR closes below its 50-week moving average this week.
*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
Powell eases recession fears, soothes markets
Global markets were more positive overnight, with the Australian and NZ dollars higher, after Federal Reserve chair Jerome Powell announced interest rates would remain on hold and that recession risks for the US were “not high”.
The Fed announced interest rates would stay in the current range of 4.25% to 4.50%; however, the world’s most important central bank also lowered its 2025 growth forecasts from 2.1% to 1.7% and raised 2025 inflation forecasts from 2.5% to 2.7%.
Despite the change in forecasts, markets were mostly cheered by Powell’s commentary, with US shares seeing their best post-Fed gain since July (source: Bloomberg). The S&P 500 gained 1.1%.
The Aussie and kiwi both rebounded from overnight lows with the AUD/USD back near three-month highs and the NZD/USD, boosted by a better December-quarter GDP result this morning, trading to December highs.
The USD/SGD and USD/CNH both moved back to recent lows.
AUD ascends despite mixed signals
Looking forward, the unemployment rate for Australia is released at 11.30am AEDT.
According to our projection, employment increased by more than 60k in February. After a little increase to 4.1% in January, the jobless rate should drop down to 4.0% this time.
AUD/USD is set to record the third positive month after three consecutive monthly declines into the end of 2024.
Next key support for AUD/USD is the 50-day MA support of 0.6326.
GBP/USD at four-month high ahead of BoE
The British pound remained strong overnight ahead of tonight’s Bank of England decision due at 11.00pm AEDT.
The BoE is seen as likely to keep interest rates on hold, with a less-than 2.0% chance of a cut according to Bloomberg data. Financial markets don’t see a rate cut fully priced in until July with this view contributing to the GBP’s recent strength.
Later tomorrow, the UK GfK consumer confidence report will be released. In February, consumer confidence was at -20, precisely where it had been during the preceding five months.
It will be interesting to see whether there is any pass-through of Europe’s fiscal decisions to UK confidence, or whether concerns about weak growth/tariffs/geopolitical noise dominate.
GBP/USD hit new four-month highs overnight, while GBP/SGD is near eight-month highs. GBP/AUD remains near five-year highs.
US dollar lower after Fed
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.
It’s Fed Day. The consensus is that the Federal Reserve will hold rates steady for the second consecutive meeting. Markets are eagerly awaiting Chair Powell’s press conference, particularly his responses to questions on tariffs, trade policy, and politics. Investors are also keen to see if there will be any forward guidance on monetary policy.
Last week, the Bank of Canada (BoC) reiterated that, given the uncertainty surrounding tariffs, it cannot provide forward guidance. Following yesterday’s CPI data, it seems increasingly likely that the BoC will also hold rates steady at its next meeting. However, the outlook remains uncertain for both central banks. Preferred measures of inflation remain sticky, household and business survey data is concerning, the impact of tariffs on prices has yet to fully materialize in hard data, and economic growth is stalling—not just in Canada, but in the U.S. as well. Adding to the complexity is the ongoing debate over the Fed’s independence, fueled by political noise. The past three years have been anything but easy for central bankers, with challenges ranging from a trade war during Trump ’45 to a pandemic, historic inflation, and regional bank failures. The road ahead looks equally challenging for both Powell and Macklem.
In Canada, inflation was anticipated to rise following the expiration of the tax break, but the price increases turned out to be surprisingly broad-based. The annual inflation rate surged to 2.6% in February 2025, climbing from 1.9% in January. This marks an eight-month high, notably surpassing market expectations of 2.2% and the Bank of Canada’s forecast of 2.5%.
Notably, inflation rebounded sharply in sectors such as restaurants (-1.4% vs. -5.1% in January) and alcoholic beverages purchased from stores (-1.4% vs. -3.6%), driving a significant recovery in the food subindex (1.3% vs. -0.6%). Price increases also regained momentum in clothing and footwear (1.4% vs. -1.3%) and accelerated further in recreation, education, and reading (3.7% vs. 1.9%). Overall, goods inflation has outpaced service inflation, suggesting that the depreciation of the Canadian dollar has contributed to higher prices. The latest report highlights that inflationary pressures have remained persistent, with the recent tax break only temporarily concealing their full impact.
Meanwhile, in the absence of tariff-related noise, the Canadian dollar has slightly appreciated against the U.S. dollar, briefly trading below 1.43. Today, markets anticipate a slightly hawkish tone from Powell, which could introduce some volatility across asset classes.
Equity rout continues pre-Fed
Boris Kovacevic – Global Macro Strategist
Hopes of a continued equity rebound have stalled for now, with investors stepping away from risk assets ahead of today’s Federal Reserve (Fed) decision. The bar for rate cuts has crept higher, driven by concerns that inflation remains uncomfortably sticky. Selling resumed on Wall Street with the largest technology names being hit the hardest.
The S&P 500 fell, dragged lower by megacaps hitting their lowest levels since September. Meta officially turned negative for the year, becoming the last of the so-called Magnificent Seven stocks to erase year-to-date gains. The dollar is once again nearing its lowest level since October, having fallen against the euro and pound in yesterday’s session.
Market participants widely expect the Fed to hold rates steady, leaving the focus on updated economic projections and Chair Jerome Powell’s press conference. Policymakers have signaled a data dependent neutral stance, looking for more evidence of disinflation and greater clarity on the impact of Trump’s policies. Uncertainty surrounding trade has left markets on edge, with investors struggling to price in the full effects of tariffs that appear to change by the week.
Recent data has painted a mixed picture. A stronger-than-expected rebound in single-family housing starts and resilient industrial output have provided some reassurance that the US economy isn’t on the verge of a recession. However, hotter-than-expected import prices added to concerns about inflation becoming entrenched, further complicating the Fed’s path.
Despite softer risk sentiment, the greenback has struggled to capitalize on safe-haven flows, reflecting investor unease over the longer-term impact of Trump’s policies. With Powell set to address the press later today, markets will be watching for any hints about the timing of future cuts. Any signal that rates could remain high for longer may give the dollar a short-term boost, while a more dovish tilt could reignite pressure on the currency.
European confidence making a comeback
George Vessey – Lead FX & Macro Strategist
The outlook is brightening across Europe, buoyed by hopes of Ukraine ceasefire and the passage of a landmark spending package in Germany’s parliament. European equities have outperformed their US counterparts year-to-date, most notably with the German DAX up 17%. The euro is also over 5% stronger than the dollar this year and investors are becoming more optimistic about the future.
Germany’s ZEW Indicator of Economic Sentiment jumped to 51.6 in March, the highest level in over three years, compared to 26 in the previous month and forecasts of 48.1. The last time the indicator increased this substantially was in January 2023. The assessment of the current economic situation remains stable, but it’s the expectations index that depicts the positive impact surrounding Germany’s fiscal policy, including the agreement on a multibillion-euro financial package for the federal budget. Digging into the details, investors’ expectations of rising inflation has risen to the highest level since 2022. Moreover, while over 60% of respondents still expect interest rates to fall, the proportion has sharply dropped from its 1-year average of 80%. This likely reflects the anticipated effects of fiscal loosening and monetary tightening.
Such conditions should be supportive for the common currency, which continues to hold onto the $1.09 handle and well above its 200-day moving average support nearer $1.07. The Fed’s meeting today could inject fresh directional impetus for the pair, but in overbought territory according to the 14-day relative strength index, we’re dubious of further gains in the very short term.
Profit-taking risk ahead of BoE
George Vessey – Lead FX & Macro Strategist
The pound briefly peered above the $1.30 handle yesterday as the US dollar weakened across the board. However, GBP/USD failed to hold above this key level in sign of exhaustion to the upside as several technical indictors are flashing “overbought”. The prospect of a meaningful pullback cannot be discounted in the coming weeks if the pound continues to stall around these levels.
Market participants might also look be looking to sell sterling ahead of Thursday’s Bank of England (BoE) decision, which recent history shows tends to weigh on the UK currency. Although a dovish Fed might jolt the dollar lower today, traders may look to take profit on the more than 7% uplift in GBP/USD since early February. Looking further down the line, the $1.35 mark could be a key level to target to the upside though 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. GBP/USD has been under $1.35 now for over two years – its longest ever stint below this level. But should the pair hold above $1.30, bullish traders will likely be eying $1.35 as an upside target later this year. From a technical perspective though, we think the 14-day relative strength index being near to or in overbought territory for most of this month suggests a correction lower might be looming in the very short-term before a resumption of the uptrend takes hold.
On the flipside, sterling’s outlook versus the euro doesn’t look so rosy. The bullish narrative we were pushing last month has been turned on its head since Germany’s decision to boost expenditure, which is viewed as a significant moment for the entire European economy and its growth outlook. We see €1.1740 as a key downside target if GBP/EUR closes below its 50-week moving average this week.
*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.
It’s been a wild start to 2025, and uncertainty is now the new normal. With a tit-for-tat trade war officially under way financial markets have been shaken, and volatility prevails.
Convera is excited to announce its latest Market Insights report, Trump, Tariffs and Trade, exploring how the current geopolitical situation might impact global commerce this year.
If your cash flows are being impacted by recent swings in currency volatility, our report offers key insights into:
What trade tensions and tariffs mean for economic growth in 2025
The latest data and projections for key currency pairs
Insights to help your business manage FX risk in the year ahead
Key insights from the report
Uncertainty: The new normal
Global trade is near record highs, but value chains are being reshaped by geopolitical tensions and shifting policies. Companies now weigh politics alongside profits, driving trends like friend-shoring and reduced foreign investment despite the US maintaining its position as the world’s top importer. This combination of global fragmentation and US trade dominance ensures that President Trump’s tariff policies remain critical.
Trump’s influence is heightening uncertainty, with his bold policies on trade, immigration, and global alliances keeping markets on edge. Persistent shifts in alliances and policy make it harder for investors to navigate risks like tariffs, complicating the economic outlook.
As tariffs rise, retaliation follows
The U.S. administration quickly raised tariffs on Canadian, Mexican, and Chinese imports, which in turn triggered swift retaliation. Canada plans phased tariffs on $100 billion worth of U.S. goods, Mexico is expected to follow, and China has imposed levies of up to 15%.
Investors had grown complacent about tariff risks, but this escalation signals worsening trade relations and heightened recession concerns. On Polymarket, recession probability jumped from 23% to 40% in two weeks. Fixed-income markets reflect similar fears, with expectations for three Federal Reserve rate cuts now fully priced in (source: Bloomberg).
Dollar ambiguity
The U.S. dollar finds itself in a tug-of-war between the short-term lift from tariff hikes and the downward pressure from weaker economic data, fueling volatility in FX markets. Whilst tariffs may temporarily strengthen the greenback, they also pose a long-term risk by discouraging international demand and debt issuance in dollars. This contradiction is significant as America’s ability to sustain higher debt levels is closely tied to the dollar’s unique global status, but protectionist measures could gradually erode that advantage. In an environment where market signals are increasingly clouded by noise, a scenario-driven approach to FX forecasting has never been more essential.
Download the report, prepare for the future
President Trump’s trade policies, rising tariffs and shifting political alliances are causing uncertainty in currency markets, and increasing risks for companies operating across borders. Retaliatory tariffs, friend-shoring and trade realignment are forcing businesses to rethink their sourcing strategies, while increased currency volatility is complicating cash flow management.
Convera’s latest Market Insights report, Trump, Tariffs and Trade offers a comprehensive analysis of these challenges. Download the report today to help safeguard your financial operations and make informed decisions in 2025’s rapidly evolving landscape.
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Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
USD mostly lower, but Aussie and kiwi slip from highs
The US dollar was weaker overnight with the USD index falling to four-month lows ahead of tonight’s all-important US Federal Reserve decision.
The greenback followed US shares lower with key stockmarket indexes down overnight after a two-day rally was brought to an end. US shares remain in a short-term downtrend as investors worry about a slowdown in US data and the impact of tariffs on the US economy.
The US dollar was mostly weaker in Europe and versus safe havens like the Swiss franc and Japanese yen.
The Aussie and kiwi slipped ahead of the Fed decision, however, with both markets reversing after recent strong gains.
Ahead of the Fed, markets will be looking to the Bank of Japan today in Asia trade
All eyes on Fed meeting
The Federal Reserve meeting is scheduled for this Thursday at 5:00am AEDT.
The Fed will probably adopt a cautious stance at its March meeting due to downside risks to growth and trade policy uncertainties.
The median dots should essentially stay the same, indicating two rate reductions this year. The recent slowdown in economic momentum is probably acknowledged in the statement.
We believe the Fed will likely maintain rates at their current level until 2025 due to tariff-driven inflation. Nonetheless, the Fed can afford to be conservative in reversing cut pricing as market mood is tense and there is little excitement around the May meeting.
Looking at USD/SGD, it is now at four-month lows. We expect range bound price action for USD/SGD in the short term.
The next key daily resistance levels are at the 200-day EMA 1.3398 and 50-day 1.3426, where SGD buyers may look to take advantage.
IDR resilience amid regulatory reforms
This Wednesday at 18:30 AEDT, Indonesia will publish its policy rate.
We anticipate that BI will maintain the policy rate at 5.75% due to growing fiscal risks, internal policy worries, and repeated IDR underperformance brought on by increased external uncertainties and more US tariff pronouncements.
These should help contain rupiah weakness and support the case for a continued easing cycle by BI.
USD/IDR is now trailing the key 50-day MA support of 16,2893.41. USD sellers may look to take advantage at key resistance 16738, its highs of April 2020.
Aussie, kiwi slip from recent highs
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.
US equity indices have started the week in the green and the US dollar in the red as investors continue to weigh trade policy uncertainty, recession risks and geopolitical developments. Volatility across stocks and currencies continues to subside following the mixed US retail sales report yesterday, but plenty of catalysts this week could challenge this trend.
On the macro front, US retail sales rose 0.2% in February, less than forecast, and January data was revised to a 1.2% decline, the biggest drop since July 2021. Seven out of the 13 categories saw a decline in February, whilst non-store retailers, a proxy for online spending, posted the largest jump since late 2023. While the hard data are holding up somewhat for now, sentiment and forward-looking indicators show an elevated slowdown risk. For example, we saw a sharp drop in New York state manufacturing activity, whilst the prices paid component jumped to its highest level in over two years. Combined, this adds to evidence that tariff risks are hitting consumer spending whilst reigniting inflationary pressures for businesses. The market reaction was fairly muted, but the day ended with the dollar index sliding back towards 5-month lows and Treasury yields slipping across the curve.
Balancing growth-related concerns with the need to reassure investors of the economy’s resilience presents a significant challenge for Federal Reserve Chair Jerome Powell this week. He is scheduled to address the public following the conclusion of the central bank’s meeting on Wednesday, where policymakers are anticipated to keep interest rates unchanged.
Clearing the $1.09 barrier
Boris Kovacevic – Global Macro Strategist
The euro continues to push higher, starting the week on a positive footing as risk-on sentiment drives markets. Equity benchmarks across major economies are rising, supported by stronger-than-expected macro data from China and significant fiscal policy developments in Germany that could have long-term implications for European growth. EUR/USD is trading above $1.09 again and could test its year high at $1.0955.
China’s industrial production expanded by 5.9% year-over-year in two months to February, surpassing market expectations of a 5.3% increase. Retail sales rose by 4.0% in the same period, accelerating from 3.7% in December and marking the strongest retail turnover since last October, largely driven by increased consumer spending during the Spring Festival. The resilience of the Chinese economy is a positive signal for global trade, particularly benefiting the Eurozone, given its strong economic ties with China. The risk-on mood, combined with stronger demand signals from Asia, is offering broad support for the euro. At the same time, developments in Germany are adding another layer of support for the common currency.
Lawmakers in Berlin are expected to pass sweeping constitutional changes this week that will remove borrowing restrictions for defense spending in excess of 1% of GDP. This move could have broader implications for the Eurozone economy, as increased government spending on defense and infrastructure could help offset some of the current growth headwinds and support the economic outlook.
Against this backdrop, EUR/USD remains in an upward trend, benefiting from improving risk sentiment and fiscal expansion prospects in Germany. However, further upside will depend on upcoming US economic data, particularly inflation figures and Fed guidance, which could influence expectations around the dollar. Meanwhile, ECB policy expectations remain a key factor, as markets continue to price in rate cuts later this year, but any signs of resilience in the European economy or fiscal expansion could challenge these.
Knocking on the door of $1.30
George Vessey – Lead FX & Macro Strategist
One again, sterling traded within a whisker of the $1.30 handle versus the US dollar, with GBP/USD notching $1.2999 yesterday. The $1.30 handle is a key psychological level, which if overturned, could trigger an acceleration higher as it did in August last year. However, the pound’s already circa 7% rally from its low of 2025 raises the question, is there much more room for it to run higher in the short term?
Monetary policy is a key driver of FX trends and whilst no cuts are expected by the Fed or Bank of England (BoE) this week, the pricing further out favours sterling at this stage. Overnight indexed swaps are pricing in nearly a 75% chance that the BoE will cut in May and just a 25% chance of a cut by the Fed that month, but more easing by the US central bank is expected overall by the end of this year. This is constructive for sterling via an improving UK-US yield spread. But it also leaves it vulnerable to a dovish repricing if sticky services inflation and private sector wage growth start meaningfully easing. For now though, traders are losing confidence that the BoE will be able to meet its inflation target sustainably over its forecast horizon, with breakeven rates across key tenors all well above 3%. Ultimately, the situation is complex for the BoE, and it will likely tread carefully, especially amidst heightened uncertainty due to domestic fiscal policy initiatives and trade policy tensions.
In light of the muddy domestic backdrop then, a break and rally above the $1.30 mark might therefore be more reliant on the fading US exceptionalism narrative, weakening the dollar. Indeed, speculative FX traders are once again betting on the pound appreciating versus the dollar, with CFTC data showing the highest GBP net long position since mid November.
*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.
A Bank of Canada (BoC) survey last week revealed that due to tariff tension with the U.S. more Canadians are worried about job security, especially in industries that rely on exports to he U.S. People are also cutting back on non-essential spending. At the same time, businesses are reducing investments in response to rising inflation expectations. Over in the U.S., the University of Michigan (U-Mich) survey showed a drop in consumer confidence and a rise in inflation concerns. It’s clear that tariff tensions are weighing heavily on both sides of the border. While sentiment surveys aren’t always the best indicators of future economic activity, unexpected trade uncertainty often ends up slowing growth in the following quarters.
Canada’s February Consumer Price Index (CPI) comes out today, with a year-over-year projection of 2.2%. This will help reveal whether inflation expectations are already influencing prices or if we might see disruptions from tariffs in the months ahead. For now, things on the tariff front should stay quiet until April 2nd, when the U.S. is expected to announce its reciprocal tariffs. Word has it the U.S. plans to roll out 25% tariffs across the board for Canada, along with a host of new measures, according to top officials who spoke with a Canadian delegation.
The United States is currently adding a 25% surcharge on Canadian steel, aluminum, and goods that don’t comply with the CUSMA/USMCA trade deal. In future negotiations, the U.S. and Canada will tackle some major sticking points, like Canada’s 3% digital services tax on online revenue and its dairy quotas—issues that have caused friction since the 2018 USMCA revisions. Even without new tariffs, though, it doesn’t look like this trade dispute will get fully resolved until the trade agreement is renegotiated. In the meantime, the uncertainty is expected to put pressure on the Canadian economy. All eyes are on April 2nd, when the U.S. administration’s tariff strategy will become clearer, setting the stage for future trade talks.
Retail sales miss weighs on dollar
George Vessey – Lead FX & Macro Strategist
US equity indices have started the week in the green and the US dollar in the red as investors continue to weigh trade policy uncertainty, recession risks and geopolitical developments. Volatility across stocks and currencies continues to subside following the mixed US retail sales report yesterday, but plenty of catalysts this week could challenge this trend.
On the macro front, US retail sales rose 0.2% in February, less than forecast, and January data was revised to a 1.2% decline, the biggest drop since July 2021. Seven out of the 13 categories saw a decline in February, whilst non-store retailers, a proxy for online spending, posted the largest jump since late 2023. While the hard data are holding up somewhat for now, sentiment and forward-looking indicators show an elevated slowdown risk. For example, we saw a sharp drop in New York state manufacturing activity, whilst the prices paid component jumped to its highest level in over two years. Combined, this adds to evidence that tariff risks are hitting consumer spending whilst reigniting inflationary pressures for businesses. The market reaction was fairly muted, but the day ended with the dollar index sliding back towards 5-month lows and Treasury yields slipping across the curve.
Balancing growth-related concerns with the need to reassure investors of the economy’s resilience presents a significant challenge for Federal Reserve Chair Jerome Powell this week. He is scheduled to address the public following the conclusion of the central bank’s meeting on Wednesday, where policymakers are anticipated to keep interest rates unchanged.
Clearing the $1.09 barrier
Boris Kovacevic – Global Macro Strategist
The euro continues to push higher, starting the week on a positive footing as risk-on sentiment drives markets. Equity benchmarks across major economies are rising, supported by stronger-than-expected macro data from China and significant fiscal policy developments in Germany that could have long-term implications for European growth. EUR/USD is trading above $1.09 again and could test its year high at $1.0955.
China’s industrial production expanded by 5.9% year-over-year in two months to February, surpassing market expectations of a 5.3% increase. Retail sales rose by 4.0% in the same period, accelerating from 3.7% in December and marking the strongest retail turnover since last October, largely driven by increased consumer spending during the Spring Festival. The resilience of the Chinese economy is a positive signal for global trade, particularly benefiting the Eurozone, given its strong economic ties with China. The risk-on mood, combined with stronger demand signals from Asia, is offering broad support for the euro. At the same time, developments in Germany are adding another layer of support for the common currency.
Lawmakers in Berlin are expected to pass sweeping constitutional changes this week that will remove borrowing restrictions for defense spending in excess of 1% of GDP. This move could have broader implications for the Eurozone economy, as increased government spending on defense and infrastructure could help offset some of the current growth headwinds and support the economic outlook.
Against this backdrop, EUR/USD remains in an upward trend, benefiting from improving risk sentiment and fiscal expansion prospects in Germany. However, further upside will depend on upcoming US economic data, particularly inflation figures and Fed guidance, which could influence expectations around the dollar. Meanwhile, ECB policy expectations remain a key factor, as markets continue to price in rate cuts later this year, but any signs of resilience in the European economy or fiscal expansion could challenge these.
Knocking on the door of $1.30
George Vessey – Lead FX & Macro Strategist
One again, sterling traded within a whisker of the $1.30 handle versus the US dollar, with GBP/USD notching $1.2999 yesterday. The $1.30 handle is a key psychological level, which if overturned, could trigger an acceleration higher as it did in August last year. However, the pound’s already circa 7% rally from its low of 2025 raises the question, is there much more room for it to run higher in the short term?
Monetary policy is a key driver of FX trends and whilst no cuts are expected by the Fed or Bank of England (BoE) this week, the pricing further out favours sterling at this stage. Overnight indexed swaps are pricing in nearly a 75% chance that the BoE will cut in May and just a 25% chance of a cut by the Fed that month, but more easing by the US central bank is expected overall by the end of this year. This is constructive for sterling via an improving UK-US yield spread. But it also leaves it vulnerable to a dovish repricing if sticky services inflation and private sector wage growth start meaningfully easing. For now though, traders are losing confidence that the BoE will be able to meet its inflation target sustainably over its forecast horizon, with breakeven rates across key tenors all well above 3%. Ultimately, the situation is complex for the BoE, and it will likely tread carefully, especially amidst heightened uncertainty due to domestic fiscal policy initiatives and trade policy tensions.
In light of the muddy domestic backdrop then, a break and rally above the $1.30 mark might therefore be more reliant on the fading US exceptionalism narrative, weakening the dollar. Indeed, speculative FX traders are once again betting on the pound appreciating versus the dollar, with CFTC data showing the highest GBP net long position since mid November.
*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.
