Written by the Market Insights Team
Equities flat after volatile session
Boris Kovacevic – Global Macro Strategist
The dollar weakened on Thursday as markets grappled with shifting risk sentiment, volatile equities, and the latest trade policy developments. Wall Street fluctuated between gains and losses after President Trump unexpectedly announced 25% tariffs on imported cars and light trucks the day prior. The move heightened uncertainty, leaving investors questioning its long-term economic impact.
Economic data offered a mixed picture. The US economy expanded at an annualized 2.4% in Q4, slightly exceeding expectations. Strong consumer spending and preemptive purchases of durable goods, including vehicles, helped support growth ahead of the new trade measures. Meanwhile, corporate profits hit an all-time high, highlighting business resilience despite an increasingly challenging policy landscape.
Still, economists warn that persistent trade disruptions could weigh on investment and hiring in the months ahead. Reports of government-sector job reductions, particularly tied to cost-cutting initiatives at the Department of Government Efficiency, have raised concerns about future employment trends. For now, labor market indicators remained solid. Initial jobless claims edged lower to 224,000 last week, coming in slightly below forecasts and reinforcing the strength of US employment.
Up for now, risks remain
Boris Kovacevic – Global Macro Strategist
The euro broke its losing streak on Thursday, rising for the first time in eight sessions as markets digested the latest trade developments from Washington. EUR/USD climbed to $1.08, recovering from recent losses after an initial dip on news that President Trump had formally signed off on 25% tariffs on auto imports.
While the trade war escalation briefly pressured the euro, investors appeared to take a wait-and-see approach, especially as the European Union reaffirmed its commitment to retaliate if the tariffs remain in place. Despite Trump stating he has no interest in further negotiations, markets remain cautious given his history of policy shifts. At the same time, concerns over US economic growth provided some tailwinds for the euro.
For now, the euro’s rebound offers a temporary reprieve after a week-long slide, but with trade tensions still unresolved and the broader macro outlook uncertain, volatility is likely to persist in the sessions ahead.
A contrarian signal
Kevin Ford – FX & Macro Strategist
Implied volatility, derived from an option’s price, reflects the market’s expectations of future price fluctuations for the underlying asset. While it doesn’t predict the direction of price movement, it quantifies the market’s belief in the potential magnitude of future volatility.
In the world of FX options, the At-The-Money (ATM) volatility curve is often upward sloping. This indicates higher implied volatility for longer-dated options, as uncertainty tends to grow over time, leading to greater expected price fluctuations in the underlying currency pair. Conversely, a downward-sloping curve suggests that shorter-dated options carry higher implied volatility than their longer-dated counterparts. This pattern often signals heightened near-term uncertainty or anticipated events—such as economic data releases, geopolitical developments, or central bank decisions—that could trigger significant short-term price movements.
For the Loonie, the ATM option volatility curve has been upward sloping since October last year. This shift coincided with increased odds of a Trump ’47 presidency, the implosion of the liberal government, and a deeply struggling economy. In practical terms, this means the 1-month ATM option volatility has exceeded the 6-month ATM option volatility. The market seems to suggest that volatility has an expiration date, hinting that the Loonie might weather the worst of the tariff saga in the next few months.
Historically, the spread between 1-month and 6-month implied volatility has surpassed 200 points only three times since 2008: during the Great Financial Crisis (GFC), the Covid-19 pandemic, and the 2025 US-Canada tariff spat. These moments share a common thread—they’re seen as severe supply shocks to the economy. What happened to the Loonie after the dust settled in the GFC and the pandemic? It recovered, dropped sharply from extreme values, and began reflecting its fundamental fair value. Could the Loonie find its footing in the second half of 2025? Only time will tell.
For now, the spotlight to end the week will be on U.S. PCE data. If inflation remains sticky, it is likely to bolster the dollar, supporting the DXY’s consolidation above the 104 mark.
Hedge against tariff noise
George Vessey – Lead FX & Macro Strategist
Although global risk aversion is on the rise today ahead “Liberation Day” next week, the pound is proving resilient. GBP/USD remains afloat $1.29, up on the week, and GBP/EUR is flirting with the key €1.20 handle. We think gains for the pound reflect optimism that the UK will avoid the worst of Trump’s reciprocal tariff plan.
Sterling is being dubbed a hedge against tariff noise because the UK has a goods trade deficit with the US and because the US President appears to have backtracked on his threat to tariff countries that charge sales taxes like VAT, such as the UK. Ultimately, the impact on the UK economy could be less damaging compared to other major peers who are being targeted more by Trump. However, the UK is not immune to tariff risk. The rise in gilt yields we’ve seen is partly a result of expected inflationary concerns due to the global trade war, and also the fragility of the government’s fiscal plans. Despite a largely softer set of readings on UK inflation and a bond issuance plan that should have tempered concern about supply at the long end of the curve, gilts yields are higher that where they were at the start of the week.
This only heightens concerns over sustainability of the Chancellor’s spending plan, with the fiscal buffer eroding, which risks creating a vicious cycle, where fiscal worries push up yields, eating into the nation’s limited headroom and making the Treasury’s position even worse. For now, the pound is rising in line with gilt yields, but if investors get too twitchy about the situation, this positive correlation could break down as we saw earlier this year.
On the data front, final UK GDP results for Q4 2024 confirmed tepid growth as expected, but was revised slightly higher on an annual basis from 1.4% to 1.5%. UK retail sales data for February also came in much stronger than expected at 1% m/m versus the -0.4% forecast – propelled by an increase at department stores as well as clothing and household goods shops. This data adds to the skepticism around how much the Bank of England can keep cutting interest rates, which is, for now, supporting sterling too.
Yen edges higher on stronger than expected Tokyo CPI
Table: 7-day currency trends and trading ranges
Key global risk events
Calendar: March 24-28
All times are in ET
Have a question? [email protected]
*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.
Leave a Reply