Category Currency

• Tariff uncertainty weighs on markets. President Trump has delayed tariffs on Canada and Mexico for another month, adding to market uncertainty. The Nasdaq has entered a correction, down 10%, while the dollar continues its slump.
• US dollar weakens. The dollar’s safe-haven appeal remains intact, but confidence is eroding due to Trump’s erratic policies, weaker US growth, and dovish Fed expectations. Meanwhile, US yields are underperforming G10 peers.
• US trade deficit. The US trade deficit hit a record high in January as imports surged 10% ahead of anticipated tariffs. Job cuts soared to their highest since 2020, driven by DOGE layoffs, but initial jobless claims came in below expectations
• Berlin Wall falls. Germany’s historic infrastructure and defense spending plan, coupled with the ECB’s 25bps rate cut, reinforced the rotation into Europe. The German 10-year yield surged 42bps this week, while the euro posted a 4% rally against the dollar—one of its strongest moves on record.
• Risks remain. Investors are still on edge over potential US tariffs on European goods, which could push the ECB toward continued easing. A tariff-free scenario and fiscal expansion would make a pause more justifiable.
• Stronger pound. bond yields surged as markets priced in a major fiscal shift, sending UK 10-year yields to one-month highs. The widening UK-US 10-year spread hit an 18-month high, fueling a pound rally against the struggling US dollar.

Global Macro
A week where decades happen

Confusion. Tariffs on, tariffs off, is the name of the game. US President Donald Trump has performed another reversal on tariffs, delaying duties on many goods from Canada and Mexico for a month. This is the second month-long delay Trump granted on his own tariffs and the uncertainty continues to take its toll on financial markets. The tech-heavy Nasdaq index, for example, has fallen 10% from its recent peak, defined as a market correction, whilst the US dollar is on track for its worst week in over two years. Overall, it’s a risk-off mood in which Europe is outperforming the US due to uncertainty coming from the Trump administration.

Historic. This is what European investors have eagerly been waiting for. Germany’s likely next coalition of the CDU and SPD is preparing for a major fiscal expansion, potentially widening the deficit to 4% of GDP over the next decade. While details remain unclear and implementation risks are high, the plan aims to bolster military deterrence, drive economic recovery, and reshape Germany’s lagging infrastructure. Around €500 billion could potentially be available for investment over the next ten years.

Double stimulus. European and Chinese equities have outperformed their US counterparts this week, signaling the emergence of a new macro narrative—one that favors assets in countries benefiting from both fiscal and monetary stimulus. Germany’s commitment to major defense and infrastructure spending, alongside yesterday’s ECB rate cut by 25 basis points to 2.5%, underscores this shift. The German 10-year yield has surged a historic 42 basis points this week, while the euro’s 4% rally against the dollar marks one of its strongest gains on record. However, both assets retreated slightly after the ECB’s somewhat hawkish press conference, where policymakers debated the need for further easing.

Week ahead
Inflation increase to rattle markets?

Global markets are set for another volatile week as investors assess inflation trends, central bank policies, and key macroeconomic data. The interplay between slowing growth, sticky inflation, and central bank actions remains the dominant theme, shaping expectations for interest rates and asset prices. With crucial inflation readings out of the US, a Bank of Canada rate decision, and fresh growth data from the UK and Germany, this week could provide more clarity on the direction of global monetary policy and economic resilience.

US JOLTs. The US labor market remains a crucial focus for the Fed. January’s job openings came in at 7.6M, slightly below the consensus. While still strong, a further decline in openings could hint at a cooling labor market, reinforcing expectations of future Fed rate cuts.

US Inflation data. Inflation remains the most important macro driver for markets. February’s core inflation is expected to bounce from 3.1% to 3.3%, complicating matters for policy makers at the Fed.

Bank of Canada rate decision. The BoC is expected to cut interest rates by 25 basis points to 2.75%. Investors will be closely watching the statement of the rate decision as a hawkish or dovish tilt can move markets more than the cut itself.

UK GDP. The UK economy has been on a fragile footing, and January’s GDP MoM should confirm a slowing in momentum from 0.4% to 0.1%. This weakness might increase expectations for near-term BoE rate cuts, pressuring the pound. However, persistent inflation concerns could limit downside momentum.

FX Views
Investors abandoning the dollar

USD Worst week in over two years. The US dollar has depreciated against 88% of its global peers so far in March. It’s on track for its worst week since November 2022, sliding almost 4% against a basket of major peers as investors shift focus from the inflationary impact of tariffs to the US growth risks. Macro data has been mixed this week, but overall Fed easing bets have increased, keeping US yields near 6-month lows. The dollar’s yield-driven bullish case is therefore weakening. Rate differentials with the Eurozone are the lowest in six months, helping to send the euro 4% higher versus the buck. The dollar’s status as a safe-haven asset and reserve currency won’t disappear overnight, but the global shift away from it this week has been eye-opening. The acceleration is mainly a result of Trump’s unpredictable policies undermining confidence in the dollar, but the increasing risks around stagflation are also erasing the dollar’s high growth advantage. We think the recent move may be overstretched in the very short-term, with the dollar index now in oversold territory, but it’s fair to assume we’ve probably witnessed the peak of the dollar already this year.

EUR Eyepopping surge after fiscal boost. The euro has rocketed over 4% this week versus the US dollar, recording its biggest 4-day advance in a decade. EUR/USD has blown through its 200-day moving for the first time since November 11, and touched its highest level ($1.0871) in four months. The bullish move was initially triggered by the unwinding of Trump trades as investors shifted focus onto US economic growth risks. The euro got another bullish injection when Germany and the EU unveiled huge stimulus plans in the form of defense and infrastructure spending. This sent the 10-year bund yield soaring and the German-US real rate differential jumped to its highest since September, helped also by fading ECB easing bets. In the FX options space, traders have the highest conviction in five years that more gains are in store for the euro, with some hedge funds even wagering on an additional 10% surge, which would match the path of EUR/USD in the aftermath of Trump’s first presidential term. We warn on turning too optimistic too soon though. Europe’s spending plans still need to be approved, and the tariff war has only just begun.

GBP The twofold story. Sterling has capitalised on the dollar’s weakness this week – surging 2.5% and above $1.29 – over one cent higher than its 5-year average rate. The pair has broken above key resistance levels like the closely watched 200-day and 200-week moving averages, which is a bullish signal. Moreover, in FX options markets, short-term risk reversals betting on further sterling strength have surged to their highest in around five years. Although GBP/USD has climbed into overbought zone, suggesting a correction is due, the implied probability of touching $1.30 before the end of the month has jumped to over 60% from just 14% one week ago. Elsewhere, due to the huge spending plans unveiled by Germany, sterling has fallen 2% against the euro this week – on track for its biggest weekly loss in two years. GBP/EUR downside momentum might wane at its 50-week moving average, which has been a crucial support for over a year – currently located at €1.1878. UK growth figures will be in the spotlight next week.

CHF Two more stories to tell. The Swiss franc saw significant volatility this week against both the euro and the US dollar, driven by monetary policy shifts, shifting risk sentiment, and changing rate differentials. Growing speculation that the Swiss National Bank may soon cut rates, amid Switzerland’s low inflation and recent dovish signals, put early pressure on the franc, in particular against the euro. Meanwhile, the European Central Bank’s 25bps rate cut, accompanied by a surprisingly hawkish tone, fueled a rebound in the common currency. This pushed EUR/CHF higher, as traders reassessed the likelihood of further SNB easing relative to the eurozone. At the same time, global macro uncertainty remains elevated, and the franc traditionally benefits from safe-haven flows. However, the broad-based weakness in the US dollar, combined with rising risk appetite in Europe, driven by Germany’s historic debt issuance announcement, triggered major CHF selling against the euro. As a result, EUR/CHF surged to 0.9640€ before retreating to its 50-day moving average at 0.9520€, while USD/CHF dropped around 2.5% this week, marking its worst performance since July.

CNY PBoC pledges to prevent Yuan overshooting. USDCNH has consolidated within a narrow 100-pip range (7.2371/2480), finding support at the 7.2350 level that has held through multiple tests this year. The next significant support sits at the 200-day moving average around 7.2352. Chart shows there may be potential for Yuan to strengthen given the high correlation with EUR. PBoC Governor Pan Gongsheng stated China will “resolutely” prevent yuan overshooting risks, maintaining a consistent FX policy aimed at keeping the yuan “basically stable at reasonable equilibrium.” These comments come amid criticism from US President Trump regarding China’s exchange rate practices. Pan reaffirmed China’s intent to cut reserve requirements and interest rates at appropriate times this year, coordinating with fiscal policy while using various tools to maintain sufficient liquidity. Market participants should monitor upcoming M2 money supply data, new loans figures, and Chinese total social financing for additional directional insights on USDCNH.

JPY Descending channel maintains negative USDJPY outlook. The descending channel pattern in USDJPY actually indicates a potential reversal to the downside after the current uptrend completes, supporting a continued negative outlook. Based on this technical formation, there may be potential for further fall of USDJPY to 145 handle. Next key resistance for USDJPY at 200-day EMA 151.84. BoJ Deputy Governor Uchida indicated that while determining the neutral rate remains challenging, the central bank could proceed with rate adjustments aligned with market expectations while monitoring economic responses. He emphasized that overseas developments remain a key criterion for hike timing. While Uchida views the US economy as generally balanced, he expressed caution regarding global economic uncertainties. Upcoming Japanese current account data, household spending figures, and GDP numbers will provide further directional guidance.

CAD Riding the waves of speculation. This week, the announcement of 25% tariffs on all imports from Mexico and Canada triggered notable market movements. The Canadian dollar briefly hovered above the 1.45 level against the US dollar before retreating. Interestingly, the tariffs were accompanied by USD weakness rather than strength, as markets began pricing in the potential for a U.S. economic slowdown—something not seen in the past two years. Since Monday, the USD/CAD has dropped from its weekly high of 1.454 to 1.424, fueled by renewed speculation surrounding an early resolution to trade negotiations, along with some sectors securing exemptions and another one-month delay until April 2^nd. These factors have gradually reduced the tariff-related premium weighing on the CAD.

In the near term, technical analysis highlights key support zones at the 60-day and 20-day simple moving averages (SMAs), situated at 1.435 and 1.429, respectively. Investors should also monitor the weekly low of 1.424, a critical level that aligns closely with the 20-week SMA at 1.423.

AUD Technicals signal positive AUD turn. AUSDUSD recovered from 5-year low of 0.61 and now sits at its 50-day EMA 0.6313. Technical signals turned positive with price action closing within the Ichimoku Cloud. The pair appears to be forming a cup and handle bottom pattern, a classic positive formation. This technical setup suggests AUDUSD could continue higher, with the close inside the Cloud potentially leading to a break above it. The next key resistance is at its 200-day EMA of 0.6462. The RBA minutes revealed a more balanced tone than previously thought, acknowledging inflation declined more than expected and wages growth slowed. Officials noted possible additional capacity in the labor market and placed more weight on downside economic risks than in prior assessments. While the RBA maintains inflation targeting as priority, the overall stance appears less hawkish than conveyed in February’s press conference. Watch for Westpac consumer sentiment, business confidence, and private house approvals for next directional cues.

MXN Narrow trading range. Following last Monday’s tariff confirmation, diplomatic efforts to eliminate tariffs have gained momentum. Mexican President Sheinbaum committed to bolstering security cooperation with the U.S., showcased by the extradition of 29 high-ranking drug cartel leaders. Despite this, tariff threats will likely continue to push for an earlier USMCA revision. Banxico’s dovish pivot further underlines a constrained outlook for the Mexican Peso. Rates have rallied amid renewed U.S. growth concerns, though market sentiment remains cautious about short-term risks in local assets. Friday’s MXN CPI data, released ahead of U.S. payrolls, is expected to align with the Central Bank’s projection of CPI staying below 4%, potentially paving the way for a 50-bps rate cut by month’s end.

The Peso trades just below the 20-weekly SMA at 20.37. In the short term, the 20.18 support level is crucial if USD bid resurfaces. A further drop to the 20 level appears overstretched for now.

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 ‘hard reset’ theory

Kevin Ford –FX & Macro Strategist

Over the past month and a half, discussing markets without touching on politics has been nearly impossible. While we strive for agnostic analysis, it’s worth exploring some of the more speculative market narratives making waves in financial media, especially during times when events unfold rapidly, yet remain unclear and confusing.

We’ve been sifting through the noise trying to uncover signals in a very confusing U.S. trade policy. Drawing from Trump 45’s history, we’ve speculated on the potential dynamics of a regional trade war under Trump 47. Tariffs have been viewed as bargaining tools, revenue generators for Trump’s tax-cut budget, and even tied to the 51st state annexation rhetoric. We’ve also reviewed Trump’s decades-long affinity for tariffs, dating back to the ’80s and how during Trump 45 he linked market performance to his presidency popularity. Yet, one angle—more speculative than analytical—remains unexplored.

The “hard reset” theory suggests that the new U.S. administration could be intentionally engineering a slowdown. By using tariffs, they aim to curb inflation, lower interest rates, and weaken the dollar—all to create a more stable economic landscape for Trump 47’s agenda. While this theory may seem far-fetched, markets are increasingly leaning into the possibility of a slowdown. Stocks have sold off, the dollar has weakened, and expectations for 2025 Fed rate cuts are rising. Skeptics question whether the 3-D chess strategy is too intricate for Trump’s economic cabinet, citing erratic moves on trade policy, while others point to social media hints of an economic reset agenda.

The tariff saga remains as puzzling and elusive as ever, while the Loonie continues to navigate the tides of ambiguous trade policies and the weakening U.S. dollar. Treasury Secretary Scott Bessent, in coordination with the White House, has confirmed that goods compliant with the CUSMA/USMCA trade agreement will be exempt from tariffs until April 2nd. This announcement has triggered notable intraday fluctuations in the Loonie, which traded in a range of 1.437 to 1.424 yesterday. Meanwhile, the DXY index has experienced its steepest weekly decline since November 2022.

Adding to an already volatile week, today’s U.S. and Canadian employment data are set to cap off a week packed with macro data. A weaker U.S. jobs report could amplify bearish sentiment against the USD. However, the recent downward movement appears overextended, and the DXY is likely to stabilize around the 104 level. As markets wrestle with persistent uncertainty, tariffs and evolving trade narratives remain key drivers of sentiment, regardless of how implausible they may appear.

Tariff pendulum continues to swing

George Vessey – Lead FX & Macro Strategist

Tariffs on, tariffs off, is the name of the game. US President Donald Trump has performed another reversal on tariffs, delaying duties on many goods from Canada and Mexico for a month. This is the second month-long delay Trump granted on his own tariffs and the uncertainty continues to take its toll on financial markets. The tech-heavy Nasdaq index, for example, has fallen 10% from its recent peak, defined as a market correction, whilst the US dollar is on track for its worst week in over two years.

The dollar’s status as a safe-haven asset and reserve currency won’t disappear overnight, but the global shift away from it this week has been eye-opening. The acceleration is mainly a result of Trump’s unpredictable policies undermining confidence in the dollar, but also due to US growth scares and dovish Fed repricing, keeping US yields relatively stagnant compared to G10 peers. On the macro front, the US trade deficit widened to a record high in January, driven by a 10% surge in imports ahead of anticipated tariffs. Additionally, job cuts soared to their highest level since 2020, fuelled by significant layoffs at DOGE. However, initial jobless claims came in below expectations, offering some reassurance.

Today, all eyes are on the US jobs report. The data published last month showed a mixed bag for investors. Hiring slowed but wage growth ticked higher and continued the theme of “heightened inflation anxiety” driven by the tariff war and rising inflation expectations. Headline payrolls came in at 143k, below the 175k consensus. However, upward revisions to the past two months added 100k jobs, and the unemployment rate held at 4.0%. As for today, 170,000 new jobs are expected to have been added in February whilst the unemployment rate is seen holding steady at 4%.

European outperformance rests on stimulus

Boris Kovacevic – Global Macro Strategist

European and Chinese equities have outperformed their US counterparts this week, signaling the emergence of a new macro narrative—one that favors assets in countries benefiting from both fiscal and monetary stimulus. Germany’s commitment to major defense and infrastructure spending, alongside yesterday’s ECB rate cut by 25 basis points to 2.5%, underscores this shift.

The German 10-year yield has surged a historic 42 basis points this week, while the euro’s 4% rally against the dollar marks one of its strongest gains on record. However, both assets retreated slightly after the ECB’s somewhat hawkish press conference, where policymakers debated the need for further easing. Markets now assign a 50% probability to another rate cut in April. The ECB remains data-dependent, but divisions persist over the neutral rate, with slowing disinflation and stronger growth potentially limiting further cuts. Equity outperformance rests on both the fiscal and monetary support continuing in Europe. The hawkish ECB statements explains why the STOXX 600 is on track to record its first loss in ten weeks.

The ongoing tariff saga adds another layer of uncertainty. The Trump administration’s latest delay on Canadian and Mexican tariffs leaves markets guessing about potential levies on European goods—an outcome that could push the ECB toward continued easing, while a tariff-free environment and fiscal expansion would make a pause more justifiable. EUR/USD has found its resistance at the $1.0850 mark and is now dependent on a weak US nonfarm payrolls report to reclimb its weekly high again.

Pound firm versus dollar, fragile versus euro

George Vessey – Lead FX & Macro Strategist

The pound remains buoyant versus the US dollar near $1.29, one cent higher than its 5-year average rate. However, due to the huge spending plans unveiled by Germany and the EU and surging European yields, sterling has wilted 2% against the euro this week so far – on track for potentially its biggest weekly loss in two years. GBP/EUR downside momentum might wane at its 50-week moving average, which has been a crucial support for over a year – currently located at €1.1878.

On the macro front this week, the final UK PMI figures confirmed the private sector economy grew modestly in February. The services PMI was revised lightly lower but still beat initial estimates of 50.8 and offsetting the decline in manufacturing. Late last month, we also saw a leading indicator for UK GDP growth hit its highest level since 2017. That said, the British Chambers of Commerce yesterday slashed its forecast for the UK economy due to the tax and trade “double whammy” afflicting UK businesses. But due to the the deteriorating US growth outlook as well, the growth rate differential is narrowing between the US and UK. It’s also led to a sharp increase in the UK-US rate differential as more Fed cuts are priced in. Both factors have contributed to the pound’s latest upswing versus the dollar.

Sterling has climbed into overbought territory versus the dollar, but the implied probability of GBP/USD touching $1.30 before the end of the month has jumped to over 60% from just 14% one week ago, according to FX options market pricing. Moreover, traders have the highest conviction in five years that more gains are in store for the pound over the coming weeks, though gains will be constrained from 1-month onwards due to elevated uncertainty in trade and foreign policy globally.

DXY finds support at 104 after its worst week in 2 years

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 non-farm employment seen as critical this month

Major US markets continued to weaken overnight with further losses in US equities while the US dollar fell to the lowest level since last year’s US presidential election.

The S&P 500 fell 1.8% while the Nasdaq dropped 2.6% overnight.

The US dollar dopped to the lowest level since 5 November before recovering later in the session.

The AUD/USD, initially higher, turned lower near the major technical resistance at 0.6400 – the three-month highs. The Aussie ended flat on the day.

The kiwi also reversed at three-month highs and ended the session up 0.1%.

In Aisa, the USD/SGD rebounded from four-month lows at 1.3300, reflecting the overnight bounce in the USD. USD/CNH also recovered from four-month lows.

Looking forward, all eyes are on tonight’s US jobs report. Financial markets are looking for 160k new jobs to be added in February with the unemployment rate forecast steady at 4.0%. The report is due at 12.30am AEDT.

Slowing US credit growth may add to USD weakness

Away from US jobs, the US consumer credit report will also be closely watched. 

After rising sharply to $40.9 billion in December, consumer credit growth probably slowed to $16.0 billion in January.

January’s weak vehicle sales also suggest that the rise of auto loans has slowed.

The USD experienced significant depreciation, with the DXY Index falling by circa 2% Week-To-Date to its lowest level since November 2024.

The next key support level for the dollar index will be its 200-day EMA of 102.57 of the weekly chart.

CNH faces headwinds amid persistent deflation

Tomorrow, the China CPI will be released.

The Chinese New Year calendar mismatch between 2024 and 2025, which artificially produced a high base for February, is mostly to blame for our expectation that CPI inflation would decline to -0.4% y-o-y in February from 0.5% in January.

Due in significant part to a sequential comeback, we anticipate sequential PPI deflation of -2.0% y-o-y in February, up from -2.3% in January, and sequential CPI inflation to slow to 0.1% m-o-m in February from 0.7% in January.

We continue to have a pessimistic view of the CNH due to the possibility of future tariff hikes and the continued corporate propensity to hoard the USD.

As US tariffs increase, we continue to base our forecast on some CNH weakening, with the authorities maintaining the line at 7.50.

USD buyers may look to take advantage near 50-day EMA of 7.2422.

Greenback recovers from four-month lows

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

Greenback tumbles to four-month lows

The US dollar continued to fall overnight, down for the third straight session this week, as markets turned wary on US growth due to tariff worries.

The euro and British pound surged with markets hopeful Europe and the UK could avoid tariffs while expectations of increased defense spending saw the euro outperform.

This week’s moves bucked the recent trend of USD outperformance on tariff news. Markets instead are focused on a recent slowdown in US data, and improvement in European data, and the potential for relative outperformance for the euro.

Across the region, the greenback fell, with the AUD/USD as one of the better performers, up 1.1%. The Aussie was helped by an in-line December-quarter GDP result with full-year Australian growth at 1.3% over 2024.

The kiwi was even stronger as the NZD/USD gained 1.2%.

The USD/SGD fell 0.6% while the USD/CNH lost 0.2%.

Euro surges ahead of ECB

The euro has surged higher this week, with the EUR/USD up an incredible 4.1% this week, and the euro at or near five-year highs versus the Australian and NZ dollar.

The European Central Bank meets tonight and looks likely to cut the deposit rate by 25 basis points to 2.50%.

Furthermore, we believe that data results in comparison to the ECB’s projections lend credence to a rate reduction.

The ECB is expected to change its rhetoric about restrictiveness; we believe it will imply that rates are less restrictive today than they were previously as a result of the recent rate decreases and state that it will evaluate the degree of restrictiveness.

MYR outperformance backed by fundamentals

Today, Malaysia’s policy meeting will be held. We anticipate the BNM will reiterate that the present monetary stance is still supportive of the economy by keeping its policy rate at 3% and adopting a similarly neutral attitude to the previous MPC sessions.

Despite noting ongoing global uncertainties, we believe BNM will remain optimistic about the growth forecast and reiterate that the resilience of the local economy is expected to be maintained this year.

Although inflation remained steady in January due to the impact of the moving Chinese New Year vacation, Q4 GDP growth was revised up to 5.0% year-over-year from the advance estimate of 4.8%.

The ringgit’s superior performance in Asia is supported by Malaysia’s better trade balance and perhaps larger tourist surplus.

The next key resistance is 200-day EMA of 4.4740, where MYR buyers may look to take advantage.

USD extends losses as tariff trend reverses

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

Between rumors and dollar softness

Kevin Ford –FX & Macro Strategist

Despite the U.S. ISM services PMI (a measure of U.S. service sector activity) exceeding expectations in February, the narrative of a U.S. economic slowdown, coupled with Germany’s significant shift in fiscal policy, has driven markets to adopt a short-term bearish stance on the U.S. dollar. The DXY index has continued to struggle, losing approximately 2.8% in the last few days. This decline has capped gains for the Loonie above the 1.445 level, which has eased some of its tariff premium amid confirmation that President Trump is exempting automakers from newly imposed tariffs on Mexico and Canada for one month, and renewed hopes that tariffs could be lifted altogether if an agreement is reached soon. While the Loonie remains in uncertain territory and seeks firmer footing on trade policy, it has, for now, benefited from tariff rumors and the unexpected shift in U.S. dollar sentiment.

Altogether, the recent U.S. macro data published this week (ISM Services PMI, ISM Prices Paid, S&P Manufacturing PMI, and ISM Manufacturing) challenges the market narrative of an economic slowdown. This Friday’s payroll data will provide a more complete picture in what has been seen as a key test of the U.S. economy, amid fears of cooling following two years of failed recession predictions. The two-year Treasury yield has rebounded above 4%, reaching 4.03%, in response to this week’s positive macro news. The narrative of a U.S. economic slowdown has gained traction, supported by the Atlanta Fed GDP nowcast. However, given the indicator’s inherent volatility, it may serve as a key variable in shaping investor sentiment ahead of next month’s data, which will account for recent tariff developments.

There is also speculation that payroll data may eventually reflect the impact of DOGE’s federal employee layoffs, which number at least in the tens of thousands. However, these layoffs are unlikely to significantly influence this Friday’s payroll report, which reflects February’s data. Their effect may instead show up in March payroll figures, expected next month.

The USD/CAD is trading close to its 60-day SMA of 1.436 and has found some around the 1.433 level. In the near term, rebounds toward the 1.443 level could present shorting opportunities, especially if no significant tariff news emerges and U.S. dollar weakness persists.

The next 36 hours will be packed with market-moving events, including the ECB policy meeting outcome, remarks from U.S. Secretary Scott Bessent, key Fedspeak led by Chair Jerome Powell, the U.S. jobs report, and additional data releases from Europe, Canada and the U.S.

Tearing down the black zero and euro bears

Boris Kovacevic – Global Macro Strategist

This is what European investors have eagerly been waiting for. Germany’s likely next coalition of the CDU and SPD is preparing for a major fiscal expansion, potentially widening the deficit to 4% of GDP over the next decade. While details remain unclear and implementation risks are high, the plan aims to bolster military deterrence, drive economic recovery, and reshape Germany’s lagging infrastructure.

Around €500 billion could potentially be available for investment over the next ten years. How much of this will go into the expansion of the military complex is unclear. However, a report from the European Commission estimated that about €800 billion or 4.5% of the EU’s GDP could be mobilized in the coming years. To illustrate how significant the likely adjustment of the German black zero (rule of not increasing debt levels) is, we can take a look at their market impact. The 10-year government bond yield surged by an incredible 28 basis points to 2.8%. This is the largest single-day increase in financing costs since the reunification of East and West Germany in the 1990s.

It is also safe to say that no analyst saw the euro surging by 4% this week. However, we have consistently highlighted two key points over the past few weeks: first, that the dollar’s tariff-driven gains were likely to lose momentum as the US economy slowed, and second, that European pessimism had reached extreme levels—making positive surprises far more impactful on markets than any disappointing data or news. The German defense bazooka and signs that the Trump administration is monitoring the impact of tariff announcements on markets and the economy have pushed EUR/USD to the highest level this year above $1.08.

From now on, we warn on turning too optimistic too soon. First, the adjustment of the deficit rule needs a 2/3 majority in the German parliament which is still not guaranteed. Second, the global (US vs. RoW) tariff war has just started. Both can still act as headwinds for the euro. Still, the real rate differential makes it clear that levels such as $1.07 or $1.08 are not unjustified.

Dollar down 4% in 2025

Boris Kovacevic – Global Macro Strategist

Yesterday was probably the first trading session of the year in which global markets were not driven by developments in the US, but by the news flow coming out of Europe. The proposed increase of German defence spending and signs that the US economy are slowing have put the dollar on track for its worst week since November 2022.

The 3% drawdown is happening despite Trump’s rhetoric becoming more hawkish. This is likely due to two factors. First, investors are looking beyond the short-term safe haven flows and are asking what damage tariffs will do to the US economy. Second, despite this week’s tariff increases on Mexico, Canada, and China, potential exemptions and the undefined duration of the tariffs continue to confuse investors. Statements by the Trump administration have signalled that they are watching the impact of tariffs on markets and the economy. The White House excluded automakers from the newly imposed tariffs on Mexico and Canada for example. Could that mean that a large enough drop in equity prices or economic momentum could make Trump pivot?

Economic data came in mixed yesterday. The services sector beat forecasts and expanded modestly. Anxiety is high but the employment index rose from 52.3 to 53.9. This does contradict the ADP report, which showed that private hiring fell to the lowest level since July at 77,000. Against this ambiguous backdrop, all eyes will be on the nonfarm payrolls report tomorrow. The dollar needs an upside surprise on the jobs figure to stop the bleeding.

Pound now 7% higher than January low

George Vessey – Lead FX & Macro Strategist

As the US dollar dump continues, GBP/USD marches to fresh 4-month highs above the $1.29 handle. The pair has broken above key resistance levels including key moving averages like the closely watched 200-day and 200-week moving averages, which is a bullish signal. Moreover, in FX options markets, short-term risk reversals, favouring further sterling strength, have surged to their highest in around five years.

Expectations of the US dollar outperforming on escalating trade war tensions are fading as investors focus more on the negative repercussions on the US economy, with stagflation fears overwhelming. Instead of safe haven USD demand, traders are focused on a recent slowdown in US data, versus improvement in UK and European data, and the potential for relative outperformance between the economies. This is also having a positive impact on interest rate differentials between Europe and the UK versus the US, given the rise in Fed easing bets. Moreover, the spillover effect from surging German bund yields as a result of the proposed bazooka spending plan, saw the UK 10-year yield jump by the most in over a year yesterday, to over 1-month highs. This sent UK-US 10-year spreads soaring to an 18-month high, which has helped the pound’s rally against the battered and bruised US dollar.

But the near 7% climb from the low of $1.21 in January, and the 2.6% rally this week has pushed the pound into the overbought zone according to the 14-day relative strength index. A period of consolidation or a correction lower may be in the offing, but the psychological $1.30 level now serves as next resistance. Elsewhere, GBP/EUR has dropped 1.5% this week after enduring its biggest single day loss in five months as stronger flows into the euro dominate.

Pound now 7% higher than January low

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 the Market Insights Team

Tariffs are effectively a tax on consumers, which is a headwind to growth by nature. Thus, in an already weakening US economic backdrop, bets of more Fed rate cuts are rising, which is weighing heavily on the US dollar. The dollar index is down over 4% year-to-date. Meanwhile, Germany’s multi-billion commitment to boost infrastructure and defence spending has sent the euro 4% higher this week against the dollar, to almost 4-month highs above $1.08. GBP/USD has also marched nearly 3% higher this week with eyes on November highs of $1.30, but both the euro and pound are now in overbought territory.

Tearing down the black zero and euro bears

Boris Kovacevic – Global Macro Strategist

This is what European investors have eagerly been waiting for. Germany’s likely next coalition of the CDU and SPD is preparing for a major fiscal expansion, potentially widening the deficit to 4% of GDP over the next decade. While details remain unclear and implementation risks are high, the plan aims to bolster military deterrence, drive economic recovery, and reshape Germany’s lagging infrastructure.

Around €500 billion could potentially be available for investment over the next ten years. How much of this will go into the expansion of the military complex is unclear. However, a report from the European Commission estimated that about €800 billion or 4.5% of the EU’s GDP could be mobilized in the coming years. To illustrate how significant the likely adjustment of the German black zero (rule of not increasing debt levels) is, we can take a look at their market impact. The 10-year government bond yield surged by an incredible 28 basis points to 2.8%. This is the largest single-day increase in financing costs since the reunification of East and West Germany in the 1990s.

It is also safe to say that no analyst saw the euro surging by 4% this week. However, we have consistently highlighted two key points over the past few weeks: first, that the dollar’s tariff-driven gains were likely to lose momentum as the US economy slowed, and second, that European pessimism had reached extreme levels—making positive surprises far more impactful on markets than any disappointing data or news. The German defense bazooka and signs that the Trump administration is monitoring the impact of tariff announcements on markets and the economy have pushed EUR/USD to the highest level this year above $1.08.

From now on, we warn on turning too optimistic too soon. First, the adjustment of the deficit rule needs a 2/3 majority in the German parliament which is still not guaranteed. Second, the global (US vs. RoW) tariff war has just started. Both can still act as headwinds for the euro. Still, the real rate differential makes it clear that levels such as $1.07 or $1.08 are not unjustified.

Dollar down 4% in 2025

Boris Kovacevic – Global Macro Strategist

Yesterday was probably the first trading session of the year in which global markets were not driven by developments in the US, but by the news flow coming out of Europe. The proposed increase of German defence spending and signs that the US economy are slowing have put the dollar on track for its worst week since November 2022.

The 3% drawdown is happening despite Trump’s rhetoric becoming more hawkish. This is likely due to two factors. First, investors are looking beyond the short-term safe haven flows and are asking what damage tariffs will do to the US economy. Second, despite this week’s tariff increases on Mexico, Canada, and China, potential exemptions and the undefined duration of the tariffs continue to confuse investors. Statements by the Trump administration have signalled that they are watching the impact of tariffs on markets and the economy. The White House excluded automakers from the newly imposed tariffs on Mexico and Canada for example. Could that mean that a large enough drop in equity prices or economic momentum could make Trump pivot?

Economic data came in mixed yesterday. The services sector beat forecasts and expanded modestly. Anxiety is high but the employment index rose from 52.3 to 53.9. This does contradict the ADP report, which showed that private hiring fell to the lowest level since July at 77,000. Against this ambiguous backdrop, all eyes will be on the nonfarm payrolls report tomorrow. The dollar needs an upside surprise on the jobs figure to stop the bleeding.

Pound now 7% higher than January low

George Vessey – Lead FX & Macro Strategist

As the US dollar dump continues, GBP/USD marches to fresh 4-month highs above the $1.29 handle. The pair has broken above key resistance levels including key moving averages like the closely watched 200-day and 200-week moving averages, which is a bullish signal. Moreover, in FX options markets, short-term risk reversals, favouring further sterling strength, have surged to their highest in around five years.

Expectations of the US dollar outperforming on escalating trade war tensions are fading as investors focus more on the negative repercussions on the US economy, with stagflation fears overwhelming. Instead of safe haven USD demand, traders are focused on a recent slowdown in US data, versus improvement in UK and European data, and the potential for relative outperformance between the economies. This is also having a positive impact on interest rate differentials between Europe and the UK versus the US, given the rise in Fed easing bets. Moreover, the spillover effect from surging German bund yields as a result of the proposed bazooka spending plan, saw the UK 10-year yield jump by the most in over a year yesterday, to over 1-month highs. This sent UK-US 10-year spreads soaring to an 18-month high, which has helped the pound’s rally against the battered and bruised US dollar.

But the near 7% climb from the low of $1.21 in January, and the 2.6% rally this week has pushed the pound into the overbought zone according to the 14-day relative strength index. A period of consolidation or a correction lower may be in the offing, but the psychological $1.30 level now serves as next resistance. Elsewhere, GBP/EUR has dropped 1.5% this week after enduring its biggest single day loss in five months as stronger flows into the euro dominate.

EUR/USD up 4% in last seven days

Table: 7-day currency trends and trading ranges

Key global risk events

Calendar: March 3-7

All times are in GMT

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.