Category Currency

Written by the Market Insights Team

The Loonie braces for impact, tariff day is here

Kevin Ford –FX & Macro Strategist

Little has progressed on the trade front since the one-month pause. Officials on both sides have speculated, and Canadian premiers have presented their case in Washington. Yet, here we are again, back to the wire, awaiting news at any moment.

Tariffs are in effect for now, though a last-minute deal remains possible. Last week, the Loonie adjusted to the increased likelihood of tariffs, but markets still largely expect the 25% tariffs won’t materialize. The Loonie climbed from a weekly low of 1.4182—just above the 20-week SMA—to a three-week high of 1.4472, marking a 290-pip weekly gain. If 25% tariffs are confirmed and Canada maintains retaliatory measures, the key resistance level of 1.4472 will likely be broken. Moves toward 1.46 for the Loonie and 21 for the Mexican peso would signal heightened bearish sentiment. The 60-day SMA at 1.433 serves as critical support if tariffs are delayed another month. Speculation continues around smaller tariffs or conditions like stricter drug traffic enforcement or matching U.S. tariffs on China, which could rise from 10% to 20%. Again, contradictory messages on tariff plans for Canada and Mexico have fueled volatility, particularly in USD/CAD, where implied volatility has surged last week.

Amid the chaos, one clear winner has emerged: the Canadian Liberals. PM Trudeau’s decision to prorogue parliament has boosted his party, now leading the Conservatives in polls for the first time in years. The Liberals have gained momentum by opposing Trump’s tariff threats and increasing investment in citizen-focused infrastructure. Time and wait have worked in their favor. Mark Carney has overtaken Chrystia Freeland as the most likely successor, with a final decision expected on March 9^th. As March unfolds, Canadian politics will play out against a backdrop of ongoing uncertainty.

Today, key macro data from the U.S. will reveal whether manufacturing levels remain above the 50-expansion mark. In Canada, PMI manufacturing data is also due, though tariff news will dominate market focus.

Dollar between (-) macro and (+) geopolitics

Boris Kovacevic – Global Macro Strategist

Rising inflation expectations and tariff angst are threatening the path of the US economy towards a soft landing, a scenario that seemed increasingly more likely from October onwards. That was when economic momentum started gaining traction again as the labor market began outperforming expectations. The election of President Trump led to a one-off boost in confidence as small and medium sized enterprises bet on tax cuts and the cutting of red tape. Now this narrative is in danger of falling apart due to tariff confusion and lower growth.

Last week, for example, ended on a sour note as Trump and Zelenskiy clashed in the Oval Office due to multiple disagreements regarding the war in Ukraine. The joint press conference that should have followed was canceled, sending a stark signal to the rest of the world that an immediate peace deal seems out of reach. Geopolitics and tariff chatter have clearly been a net-negative factor for risk assets as of late.

To make matters worse, investors have started questioning the health of the US economy. Last week’s weaker than expected macro data and front-loading of imports before US companies are hit by tariffs lead to a drastic drop of growth expectations. The Atlanta Fed Nowcast for Q1 fell from 2.3% to 1.5%, a decline only seen during periods of significant turmoil or crises. Inflation published on Friday was in line with expectations with the PCE index rising by 0.3% m/m in January. However, personal spending fell by 0.2%, the first decline in almost two years.

The dollar rose for a third consecutive session and is currently only supported by the geopolitical uncertainty as the macro picture looks increasingly bad. Investors went from pricing in one rate cut by the Fed just days ago to now expecting three for 2025. This is reflected in Treasuries as well. The 2-year yield fell below 4% for the first time since October, matching the low of the US surprise index. This week’s labor market data will be the first large litmus test for the US economy and therefore the US dollar in some time.

Euro in the shadow of Trump

Boris Kovacevic – Global Macro Strategist

The euro is once again feeling the force that geopolitical uncertainty can have on sentiment and markets. European sentiment as of late has been improving, although at a slower than expected pace. The US macro picture seems to be deteriorating, and investors are back at pricing in three rate cuts from the Fed. At the same time is the narrative surrounding policy easing by the ECB becoming more complicated as inflation is picking up again.

However, none of this mattered for investors concerned with the spat between Trump and Zelenskiy and the falling implied probability of a peace deal being reached in the near term. The euro pushed lower for a second consecutive week and is once again trading below the $1.04 mark. Investors expecting the ECB meeting on Thursday to be a new catalyst to push the currency in either direction might be disappointed.

The 25-basis point cut is fully priced in, so it will be about the forward guidance to play the role of the market mover. However, the uncertain trade and geopolitical environment will likely mean that policy makers should remain caution and sensitive to the news flow. Today’s inflation print for the Eurozone is expected to show some deceleration in inflation pressures. The bigger catalyst for renewed selling pressure might once again come from the political or macro front. We would need a significant surprise on the US labor market report on Friday to see some price action of above $1.05 or below $1.03.

Swinging with risk sentiment

George Vessey – Lead FX & Macro Strategist

Having jumped to a more than 2-month high above $1.27 last week, GBP/USD is back flirting with the $1.26 handle following renewed geopolitical uncertainty as the hostile White House meeting between Trump and Zelensky threatens prospects of a US-brokered ceasefire with Ukraine and Russia. The risk sensitive pound slid against safe haven peers, but remains firm against the euro, with GBP/EUR closing the month above €1.21 for the first time since 2016.

The UK’s worsening net international investment position and the fact it has a persistent current account deficit leaves sterling reliant on foreign capital inflows. With this in mind, if we see a bigger drawdown in equity markets, then realistically the pound should come under pressure as well via the risk sentiment channel. However, on the trade front, Britain is way down on Trump’s list for tariffs, both because he likes the UK and because the UK-US trading relationship is much more balanced than most, with US actually having a goods trade surplus with the UK. This is why sterling is viewed as a tariff haven of sorts. Indeed, the FX options market reveals that one-week risk reversals are least bearish on sterling right now versus most of the G10.

The main upside risk for sterling this week is if President Trump reverses or delays increases to tariffs on Mexico and Canada that are scheduled for Tuesday as this would likely boost risk sentiment across the board. Moreover, if the influx of US data disappoints this week, particularly the labour market report on Friday, this could help the pound resume its recovery back above $1.27 versus the dollar.

Dollar jumps despite yield slump

Table: 7-day currency trends and trading ranges

Key global risk events

Calendar: March 03-07

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.

Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist

US tariffs due on Tuesday

The Australian and New Zealand dollars were stuck at recent lows on Monday as markets waited for news on the implementation of new US tariffs.

US president Donald Trump last week confirmed that his new 25% tariffs on Canada and Mexico, along with a new 10% tariff on China, would be launched at midnight, Tuesday, 4 March (EST).

However, markets are on edge, with previous announcements on trade being subject to last-minute delays or changes.

For now, the Aussie and kiwi have been pressured by these trade worries, with the AUD/USD down 0.4% on Friday and losing 2.2% over the week.

The NZD/USD was down 0.6% on Friday and lost 2.5% over the week.

We saw a similar story in Asia with the USD higher on trade worries. The USD/SGD gained 0.2% on Friday and climbed 1.3% over the week.

The USD/CNH slipped 0.1% on Friday but climbed 0.6% over the week.

EUR/USD hit by Ukraine worries, but euro gains in other markets

The EUR/USD fell sharply on Friday due to growing tensions between US president Donald Trump and Ukraine president Volodymyr Zelensky. However, the euro has been stronger in other markets.

The AUD/EUR and NZD/EUR both traded toward seven-month lows. The EUR/SGD neared two-week highs.

Ahead of this week’s European Central Bank meeting, HICP inflation for the Euro region will be announced today.

HICP inflation looks likely to have slowed somewhat by 10 basis points to 2.6%, while euro area HICP inflation decreased slightly to 2.3% year over year from 2.5% in January.

We believe that the softening of services prices is mostly responsible for the easing of core price pressures; services HICP inflation will drop to 3.8% from 3.9% earlier.

Aussie looks to retail sales, GDP

The Australian dollar faces a pivotal week with key data releases, including Q4 GDP and January retail sales.

Weakness in these figures could extend the AUD/USD’s decline, especially after a prior -0.1% retail sales contraction. 

The RBA’s February meeting minutes released this Tuesday may reinforce a cautious stance, weighing further on the AUD if growth concerns persist. 

In the US, February’s US Nonfarm Payrolls and ADP employment data will drive USD volatility. Strong job growth could revive bets on Fed tightening, buoying the dollar against peers like EUR and JPY.  ISM Manufacturing and factory orders will also test sentiment toward the US economy.

The ECB’s rate announcement is expected to cut by 25-basis points, but any shift in policy guidance could sway EUR pairs. A dovish tilt may pressure EUR/USD, particularly if Q4 GDP revisions disappoint.

China’s February CPI and PPI releases loom over regional FX. Soft PPI and subdued CPI could signal persistent deflation risks, denting CNH and APAC proxies like AUD and NZD. 

USD/SGD, USD/CNH push back to highs 

Table: seven-day rolling currency trends and trading ranges

Key global risk events

Calendar: 3 – 7 March  

All times AEDT

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.

Written by the Market Insights Team

February wrap-up with unresolved tariff issues

Kevin Ford –FX & Macro Strategist

February is drawing to a close, and after five consecutive months of declines, the USD/CAD’s losing streak has eased near the 1.44 mark amidst heightened volatility and unresolved tariff issues. The Loonie has edged upward from its weekly low of 1.4182—resting just above the 20-week SMA—to a three-week high of 1.4453—a 271-pip increase. While no definitive trade policy decisions have been made, tariff risk premia keep the Loonie above 1.44. Contradictory messages about tariff plans for Canada and Mexico have heightened volatility, particularly in the USD/CAD, where implied volatility has surged with March 4^th just around the corner. A last-minute extension to April 2^nd isn’t ruled out, but volatility is expected until formal confirmation.

Volatility surged yesterday as equity markets grappled with escalating risk aversion. While Nvidia’s strong quarterly results initially offered a lift to markets, the optimism was short-lived. Risk aversion soon took the upper hand, driving the VIX index back above the critical 20 threshold. 

Amid this month’s chaos and volatility, one clear winner has emerged: the Canadian Liberals. PM Trudeau’s decision to prorogue parliament has benefited his party, which now leads the Conservatives in polls for the first time in years. The Liberals have gained momentum by taking a strong stance against Trump’s tariff threats and increasing investment in citizen-friendly infrastructure projects. Mark Carney has overtaken Chrystia Freeland as the most likely successor, with a final decision expected on March 9^th. As we enter March, Canadian politics will unfold against a backdrop of continued uncertainty and volatility.

Today, all eyes are on the US PCE, the Fed’s preferred inflation measure. Any upside surprises could further unsettle market sentiment.

The key resistance at 1.445 has proven strong for the Loonie. 1.447 is the next level to monitor. Protection against a break above 1.45 adds pressure on the Loonie. The 60-day SMA at 1.433 serves as critical support if tariffs are delayed another month.

Next week’s packed macroeconomic calendar will provide a clearer picture of the US economy, with payrolls (Friday) and ISM manufacturing (Monday) as key data points. For Canada, manufacturing (Monday) and the unemployment rate (Friday) will take center stage.

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 all G10 peers this week bar the US dollar and Swiss franc. Meanwhile, if GBP/EUR closes the week above €1.21, 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.

Risk aversion drives stocks and yields lower

Table: 7-day currency trends and trading ranges

Key global risk events

Calendar: February 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.

• Global equities remain under pressure, while the US dollar extends its rebound amid rising risk aversion. Treasury yields are experiencing their worst weekly slide since September.
• Recent US economic data has been mixed, with GDP growing at 2.3% but jobless claims hitting a two-month high. Despite signs of slowing momentum, the dollar found support from geopolitical concerns and tariff announcements.
• Trump confirmed the implementation of 25% tariffs on Canada and Mexico and hinted at further levies on China. Trump declined to commit to a security backstop for Ukraine, instead prioritizing peace talks with Russia.
• Trump is now targeting the EU with potential 25% tariffs, though details remain unclear. Meanwhile, Germany’s incoming chancellor, Friedrich Merz, signaled no immediate fiscal reforms or military spending increases.
• The ECB is expected to cut rates by 25bps next week to 2.5%, but policymakers remain divided. Some worry about persistent inflation and trade risks, while others highlight weak growth and the risk of missing the 2% inflation target.
• The ECB meeting will be closely watched for guidance on future rate cuts, while the US jobs report will shape expectations for the Fed’s policy path. These events will be crucial in determining currency and market movements in the coming week.

Global Macro
Risk-off across the board

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 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.

Weaker data. The trade and geopolitical news flows once again overshadowed what seemed to be a pretty important week for US macro developments. Durable goods, home sales, jobless claims and GDP data sent mixed signals about the state of the world’s 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.

Tariff uncertainty. 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.

Ukraine in focus. 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.

Commodities lower for now. 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.

Trump’s new target. 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.

Cautiously dovish. 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.

Week ahead
Litmus test for the US economy

This week brings a crucial mix of central bank decisions, inflation data, and labor market reports that will shape market sentiment and dictate currency movements. The ECB meeting takes center stage, as investors assess whether policymakers will hint at a timeline for rate cuts. Meanwhile, in the US, the February jobs report will provide key insights into the strength of the labor market and its implications for the Federal Reserve’s policy path.

US. ISM PMI data will provide key insights into US economic momentum. A weak manufacturing print could raise growth concerns, while the services sector remains crucial for inflation trends. The ADP Employment report will serve as a preview of Friday’s payrolls release, with markets watching closely for any signs of labor market softening. The most critical release of the week, however, will be Nonfarm Payrolls and Unemployment. If job growth slows from the previously weak 143k, expectations for a Fed rate cut could accelerate, putting pressure on the dollar.

Eurozone. The spotlight in the Eurozone will be on the European Central Bank’s policy decision, with markets expecting a rate cut that would bring the deposit facility rate down to 2.5% from 2.75%. However, the outlook beyond this move remains uncertain. Policymakers are divided between concerns over sticky services inflation, higher energy costs, and potential U.S. trade tariffs on one side, and sluggish economic growth alongside the risk of missing the 2% inflation target on the other. The latest GDP figures will also provide insight into the region’s economic trajectory.

FX Views
Back to havens as uncertainty prevails

USD Balancing tariffs and weaker growth. The US dollar index will likely end the week higher, a feat the dollar has only achieved once in the last seven weeks. Overall, US macro 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 boosting the safe haven buck. Conviction around a sustained dollar rally is fading though, as tariff fatigue and growth concerns begin to weigh on sentiment. In fact, the dollar has suffered its biggest monthly loss (-1%) since August 2024 and is negative against most G10 peers year-to-date. Traders remain cautious amidst elevated trade uncertainty and lack of policy clarity and FX markets will remain driven by trade headlines, with the dollar benefiting from renewed tariff bet. But the long-term picture remains far from clear. For a meaningful rebound, dollar bulls will need either stronger US economic data or an escalation in the global trade war. The upcoming Nonfarm Payrolls report will be critical. If job growth slows, expectations for a Fed rate cut could accelerate, pressuring the dollar.

EUR Topped out in short term. The euro has staged a modest 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. However, the latest bout of tariff risks in the latter stages of this week saw the euro slide back under $1.04 after failing to break above its 100-day moving average multiple times. Next week, all eyes are on the ECB rate decision. A 25bps cut is expected so attention will be on forward guidance and how officials view the weak growth outlook versus reflation fears.

GBP Snaps 4-month losing streak. After appreciating against just 6% of its global peers in January, the pound’s good fortunes returned as it appreciated against over 70% of its peers in February. This was thanks to some more upbeat UK data, hawkish BoE commentary and the fact the UK is seen as less exposed to Trump’s tariff threats. Due to higher interest rates in the UK relative to other G10 peers though, the pound’s elevated carry status increases its exposure to equity market fluctuations. Hence, this week’s risk aversion has dragged GBP/USD from a fresh 2-month high of $1.27 to under $1.26. However, sterling has also appreciated against all other G10 peers this week bar the franc, in a sign that it may be deemed a tariff-haven of sorts. Indeed, against the euro, the pound has edged up above the €1.21 resistance level and a weekly close above here would be the highest in three years, with €1.22 the next upside target. Against the dollar, despite the slide this week, the pound is still primed for an over 1% rise this month, snapping a 4-month losing streak.

CHF Turning to havens. The Swiss franc appreciated against 70% of its global peers in February, up from the mere 20% it rose against the month prior. FX traders are seeking safety in traditional havens like CHF as they look to hedge against potential shocks from trade policy, geopolitics and political uncertainty. This is further evidenced by the fact one-month implied-realized volatility spreads show only franc and yen options are overpriced amongst the G10. However, the franc is vulnerable against the yen as the prospect of a positive carry on the latter currency looms large. Still, CHF/JPY has gained a whopping 55% over the past six years, so a correction lower is long overdue. Against the euro and the pound, the franc is also historically overvalued and has appreciated for two weeks on the trot against the former. However, if talks to end the war in Ukraine show signs of bearing fruit, the franc could come under selling pressure if it spurs risk appetite, though tariff policy remains a key source of uncertainty.

CAD On edge until the last minute? The USD/CAD has rebounded from its weekly low of 1.4182, just above its 20-weekly SMA, reaching a 3-week high of 1.4443—a 261 pips increase—as tariff risk premia rise amidst uncertain trade policy decisions. Contradictory messages about plans to enact tariffs on Canada and Mexico have heightened volatility, especially in the USD/CAD pair, with implied volatility surging as March 4th approaches. A last-minute deadline extension to April 2nd remains possible, but we expect volatility to remain elevated until a formal confirmation is made. The Loonie is targeting important resistance at 1.445 and may maintain upward momentum as nervousness increases and protection against a break above 1.45 puts pressure on it. The 60-day SMA at 1.433 is a crucial support level if tariffs are postponed for another month.

Next week will be filled with macroeconomic data that will provide a better gauge of the US economy, featuring payrolls (Fri) and ISM manufacturing (Mon) as key data points. In Canada, manufacturing (Mon) and the unemployment rate (Fri) will be in focus.

AUD RBA’s communication shift bolsters Aussie resilience. The RBA may stop naming dissenting board members under its new monetary policy committee regime to limit “noise” around rate decisions. Deputy Governor Hauser expects further positive inflation news but remains cautious given Australia’s tight labor market. The committee will likely present unified views in public speeches moving forward. Technically, AUD/USD shows mixed signals after Cloud rejection on February 21 with easing upward momentum suggesting a potential near-term pullback. However, the broader outlook remains positive with price closed within the Cloud and the falling wedge pattern resolved after reaching 93% of its 0.6421 target. Any pullback should find support at the lower Cloud (around 0.6200). A breakout above the Cloud would expose moves to 0.6545, then 0.6688. Market focus shifts to upcoming current account, retail sales, and GDP data for further directional cues.

JPY Wage demands fuel Yen’s technical breakout. Japan Metal Worker Unions are demanding record pay increases of 14% year-on-year, adding to wage growth momentum that could support BOJ policy normalization. Market pricing for a May BOJ rate increase remains modest at 5.375bp, supported by recent increases in underlying inflation measures. The rising wedge pattern in USD/JPY remains valid with a technical target at 145.50. A head and shoulders top formation on the weekly chart reinforces the negative outlook. Rebounds to Cloud resistance (around 153.74) would be tolerated before reconsidering this view. Chart shows USD/JPY performance over the years from 1975 onwards. USD/JPY returned circa -5% YTD. Markets will closely monitor upcoming unemployment rate, capital spending, monetary base, and household confidence data for additional clues on BOJ policy direction.

CNY Diplomatic tones accelerate Yuan strength. President Xi urged officials to respond calmly to challenges while expanding economic opening, signaling a measured approach to Trump policies. Trump indicated the US-China relationship will be “a very good one,” encouraging bilateral investment, though decoupling concerns persist with looming tariffs and his America First Investment Policy. USD/CNH displays increasing downside bias after closing below the Cloud, though overnight downside exhaustion candlestick with softer downward momentum suggests a potential near-term corrective rebound. The pair remains technically negative below the Cloud with 7.1475 as the next target. Any upside should be rejected around Cloud resistance (approximately 7.3000). A break above the Cloud would weaken negative conviction and expose 7.3682. No significant economic data releases are scheduled, keeping focus on geopolitical developments.

MXN 50bps cuts will continue

• Banxico’s latest report supports further monetary easing, citing lower growth forecasts and stable inflation projections.
• The dovish tone suggests additional rate cuts are anticipated. Governor Rodríguez reiterated that future rate cuts will likely mirror the recent 50 basis point reduction.
• Banxico presented different technical research summaries, with an emphasis on the evolution of average and extreme variations in core inflation.
• The inflation study indicates reduced inflationary pressures, aligning core inflation closer to pre-pandemic levels.
• Effects of global shocks on inflation have diminished, with most seasonally adjusted price variations returning to pre-pandemic levels.
• Extreme variations in core inflation have reached levels below pre-pandemic trends.
• The report reinforces expectations of a 50-basis point rate cut at the next two meetings, bringing the reference rate to 8.50%.
• Despite global uncertainties, Banxico remains committed to its rate cut strategy.
• The unresolved tariff threat and the ongoing USMCA renegotiation contribute to elevated market uncertainty.
• Structural issues related to USMCA may take time to resolve, maintaining heightened uncertainty.
• Gradual carry loss is expected to weigh on the Mexican peso (MXN), reducing its capacity to absorb external shocks.

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.

Written by the Market Insights Team

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.

Risk aversion drives stocks and yields lower

Table: 7-day currency trends and trading ranges

Key global risk events

Calendar: February 24-28

All times are in GMT

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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.