No Trump put to hope for?
Boris Kovacevic – Global Macro Strategist
The US dollar experienced its largest weekly decline since 2022, driven by a combination of tariff uncertainty, weaker economic data, and rising optimism in European markets following Germany’s historic debt announcement.
On Friday, the US labor market showed signs of softening, with nonfarm payrolls increasing by 151k, falling short of the 160k consensus estimate. While the deviation was not drastic, it added to broader concerns of an economic slowdown. At the same time, President Trump’s decision to postpone tariffs on Canada and Mexico failed to reassure investors, as markets continue to prioritize stability over short-term adjustments.
Investor sentiment toward the US economy has also been tempered by growing recognition that Trump’s second term may not deliver the economic boom some had anticipated. Both the President and Treasury Secretary Bessent emphasized the need for structural reforms, acknowledging that markets and the economy could face turbulence as the administration undertakes an overhaul of government policies. Government spending and employment have become bloated, according to Bessent, and a drawdown in both is needed. Investors will need to come to terms with the fact that there might be no “Trump put” in the end.
US equities ended the week lower, reflecting these concerns, though Federal Reserve Chair Jerome Powell provided a temporary boost on Friday. Powell reassured markets that the economy remains on solid footing and that he is not overly concerned about current conditions. However, his remarks failed to stem the dollar’s continued decline, which extended into the weekend.
While the dollar’s fall is primarily market-driven, history suggests that Trump’s favorability ratings tend to follow a similar trajectory. A strong dollar has often coincided with confidence in his economic policies, while periods of weakness—such as now—signal increasing investor skepticism. This isn’t to say that the dollar dictates poll numbers, but both serve as indicators of market and public sentiment. If the greenback’s slump reflects eroding trust in Trump’s economic agenda, could his approval ratings be next in line for a drop? With trade tensions rising and investors reassessing his second-term outlook, it’s a risk worth watching.
Looking ahead, investors will closely monitor economic data and policy developments, as uncertainty around trade, fiscal reforms, and monetary policy continues to shape market dynamics. The US inflation release will be a key event to watch this week.
Betting on Europe again
Boris Kovacevic – Global Macro Strategist
The euro strengthened last week, benefiting from broad dollar weakness, a shift in investor sentiment, and renewed fiscal optimism in Europe. Germany’s historic debt issuance announcement fueled expectations of stronger growth, while the European Central Bank’s quarter-point rate cut on Thursday was offset by a more cautious policy outlook.
On Saturday, ECB Executive Board member Isabel Schnabel warned that inflation in the Eurozone is more likely to remain above the 2% target for an extended period than to decline sustainably below it. Her remarks suggest growing resistance within the ECB to further rate cuts in the near term. Schnabel’s comments come as policymakers prepare for a pivotal April decision, with divisions emerging over how much further monetary easing is warranted. Meanwhile, Europe’s economic outlook continues to evolve as governments prepare to deploy hundreds of billions of euros in defense and infrastructure spending, particularly in Germany.
The euro saw strong gains last week, rallying 4.4% against the dollar. It was the largest advance since 2009, the year the German debt break had been introduced. However, the currency faced some resistance near $1.0850, as traders reassessed the implications of a hawkish ECB amid an improving economic outlook. Looking ahead, market participants will closely monitor Eurozone inflation data and ECB communications for further clues on monetary policy. With the bloc’s cyclical recovery gaining momentum and inflation risks still elevated, expectations of additional ECB easing are becoming increasingly uncertain.
Pound’s mixed fortunes
George Vessey – Lead FX & Macro Strategist
The pound has been caught in the crossfire of late, weakening against the euro, but strengthening against the US dollar. On the latter, due to US growth scares, more Fed easing being priced in has boosted UK-US rate differentials in the pound’s favour. GBP/USD surged 2.7% last week and above key moving average resistance levels, opening the door to a test of the $1.30 handle in the near-term. The daily chart is flashing overbought though, which suggests a correction lower, or period of consolidation is looming, but from a valuation perspective, GBP/USD is still 4% below its 10-year average of $1.35.
Against the euro though, given the huge spending plans from Europe, the pound suffered its worst week in two years, falling 1.6% before fading around its 50-week moving average, which has supported for over a year now. However, if GBP/EUR struggles to reclaim its 200-day moving average at €1.1929, then more downside could be in the offing, especially as the fiscal divergence between the UK and Eurozone could prove more euro positive due to growth differentials. However, a consolidation in the UK’s fiscal outlook should limit the downside risk in sterling, whilst near-term monetary policies and sterling’s carry advantage due to higher UK yields remains pound positive.
In the spotlight from the UK this week, we have monthly GDP data. The UK economy has been on a fragile footing since the second half of 2024, and January’s GDP should confirm a slowing in momentum from 0.4% m/m to 0.1%. However, the three-month average is expected to pick up from 0.0% to 0.2%. Unless we see any major deviation from the consensus, the data is unlikely to move the needle on Bank of England policy expectations.
EUR/USD up 3.3% in last seven days
Table: 7-day currency trends and trading ranges
Key global risk events
Calendar: March 10-14
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.