Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
Aussie boosted by budget, for once
The Australian dollar was higher overnight, boosted by the Australian government’s budget announcement, which looks likely to add demand to the Australian economy through household support and tax cuts.
The classic pre-election budget remained mostly restrained, with an eventual $10 per week tax cut from 2027 and a $150 energy subsidy for households in the second half of 2025. Existing university loans will be cut by 20% while $8.5 billion is directed to health care. Beer taxes will be frozen for two years.
The AUD – usually mostly unmoved by the annual budget – climbed about 40 pips after the announcement while the chances for a May rate cut from the RBA fell from 66% on Monday to 55% after the budget was released.
The tax cut announcement – held back from early release and essentially a surprise to markets – contributed to the rally.
In other markets, a mostly muted session in overseas markets were driven by another drop in US consumer confidence. The ongoing noise around tariffs and worries about a potential US recession appear to be hurting confidence. The US dollar mostly fell.
The NZD/USD was steady near two-week lows, the USD/SGD fell from three-week highs while the USD/CNH continues to trade near three-week highs.
Australia inflation data crucial for May cut prospects
At 11:30 AEDT today, the Australia monthly consumer price index (CPI) will be revealed. According to consensus, this indicator will essentially stay the same in February, at around 2.5% year over year.
For the RBA, next month’s December-quarter CPI number will be far more important. We presently forecast the Q1 trimmed mean CPI will likely soften to about 2.9% y-o-y and attribute an approximate 60% chance to a May rate cut, which depends on Q1 CPI data regarding the RBA’s capacity to execute a second 25bp rate cut in May.
Despite good gains in other cyclical markets, like the euro and GBP, the AUD/USD pair has so far been held back by major resistance near 0.6444 (200-day MA).
UK inflation stickiness drives BOE caution
At 18:00 AEDT today, the UK consumer price inflation for February will be revealed.
Higher alcohol taxes, the possibility of another significant increase in food costs, and a 2% monthly increase in gas prices should all work together to keep headline inflation high in February. In fact, we don’t think the headline will shift from January’s 3%.
GBP/USD is currently at five-month highs, while GBP/SGD at eight-month highs. AUD/GBP remains near five-year lows while NZD/GBP is plumbing ten-year lows.
In the short term, we anticipate consolidation and mean reversion to the downside for GBP/USD, with the 1.28 region serving as first support.
For GBP/SGD, the 50-day MA of 1.7061 will be the key major support.
Aussie up for second day
Table: seven-day rolling currency trends and trading ranges
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
In a surprising turn of events, President Trump hinted on Monday that certain countries might receive exemptions from the reciprocal tariffs set to roll out next week. Speaking from the White House, he remarked, “I may give a lot of countries breaks. It’s reciprocal, but we might be even nicer than that. You know, we’ve been very nice to a lot of countries for a long time.”
The markets responded with optimism. The bulls are back, fear has subsided, and the VIX has dipped below 18. The dollar is holding onto last week’s gains, while Bitcoin has surged by 10% since March 11th. This rebound is especially welcomed after major equity indexes recently slipped below their 200-day Simple Moving Average (SMA)—a key level that traders often see as a line of support or resistance. After 10 consecutive sessions below this line, both the S&P 500 and Dow Jones climbed back above it. The Nasdaq composite is still trading below it.
But is Trump the sole driver of this market shift? Not entirely. Targeted tariffs, coupled with robust S&P US services data (clocking in at 54.3, well above contraction territory and exceeding expectations), have also played a role in easing recession fears. According to Polymarket, the probability of a recession is now on the decline at 32% well below the 43% from a couple of weeks ago.
The Loonie saw modest movement following the news, trading between 1.428 and 1.431. Canada continues to grapple with steep steel and aluminum tariffs and faces the looming possibility of additional tariffs on key auto and manufacturing sectors, set to take effect next week.
The Conference Board’s Consumer Confidence surveys out today serve as yet another test for the markets—despite Chair Powell recently downplaying their significance as more noise than signal during the latest FOMC meeting. Persistent weakness in consumer data has been a key driver of the rotation from U.S. equities toward European and global markets. The survey has already dropped by 14 points between November and February, and expectations for today’s release point to a further decline, from 98.3 to 94.0, reinforcing concerns about the state of consumer sentiment.
Good data is good news
George Vessey – Lead FX & Macro Strategist
US equity markets are still in drawdown territory, with the S&P 500 around 7% from its recent peak, whilst FX speculators have turned bearish on the US dollar for the first time since October. Heightened uncertainty surrounding tariff policy and fears of a US economic slowdown have driven these moves. But comments from President Trump on his tariff plans and flash PMI data called into question these fears fears, helping stocks rebound and the dollar rise across the board.
It wasn’t all rosy. Manufacturing unexpectedly slipped back below 50, indicating contraction. Input price inflation soared to a near 2-year high, especially in manufacturing, due to tariffs. And business expectations for the year ahead dropped to their second-lowest since October 2022 amid growing caution due to demand concerns and Trump’s administration policies. However, investors focussed on the good news. The composite PMI reading jumped to 53.5, much higher than expected, driven by the larger services component, which rebounded strongly to a 3-month high after hitting a 15-month low in February. This rebound was driven by improved business inflows, strengthening customer demand and better weather conditions. Overall, recession fears appear to be easing.
Aside from yesterday’s services PMI though, we’ve seen a lot of “soft” data print weaker than expected over the last couple of months, while “hard” data, like employment, industrial output, consumer spending, has been resilient. Based on this real lagging data, we are not anywhere near a recession, but the divergence between soft and hard data is creating confusion about the true state of the economy. All of this culminates in an exceptionally murky outlook for monetary policy, as the Federal Reserve remains highly data-dependent. Cutting rates too soon risks stoking inflation, at a time when inflation expectations are on the rise, while keeping rates too high could weigh on growth.
In any case, the selling pressure on the dollar is already fading, helped by the strong PMI data and wavering US slowdown fears, but also because reports emerged that President Donald Trump’s April 2 tariffs are poised to be softer and more targeted than initially anticipated. However, even if tariff risks and recession fears escalate, we don’t expect the dollar to be shunned completely, purely due to its safe haven appeal in times of rampant risk aversion.
Euro down on buyers’ fatigue
Boris Kovacevic – Global Macro Strategist
The euro extended its decline for a fourth consecutive session, with EUR/USD slipping to $1.08 despite relatively resilient PMI data and signs of flexibility from President Trump on the tariff front.
The eurozone’s latest economic activity indicator showed the fastest expansion in seven months, with the composite PMI inching up to 50.4. While this was slightly below market expectations, the manufacturing sector outperformed, offering a glimpse of optimism for an economy that has struggled with stagnation. Germany led the improvement, as anticipation builds over the economic boost from its newly approved fiscal expansion focused on infrastructure and defense.
Yet, despite these glimmers of recovery, the euro’s recent rally has run out of steam. After surging to a six-month high of $1.0955 last week on optimism over Germany’s fiscal shift, the common currency has been unable to hold onto those gains. The passage of the debt brake reform in Germany’s upper house of parliament last Friday marked a historic shift in European fiscal policy, but the market reaction suggests that much of the optimism was already priced in.
Investors now appear to be looking for tangible signs that fiscal stimulus will translate into stronger growth, particularly in light of ongoing global trade uncertainties. Meanwhile, Trump’s latest remarks on tariffs injected some relief into markets, with the US president signaling openness to a more measured approach. The path forward for the euro will likely hinge on whether this fiscal-driven optimism can be sustained and whether the manufacturing recovery proves durable in the coming months.
Sturdy start for sterling
George Vessey – Lead FX & Macro Strategist
Sterling started the new week on a stronger footing against many major peers after PMI data revealed UK business activity growth hit a 6-month high in a sign of an economic recovery in Q1. Then came the stronger US PMI figures, which sent GBP/USD into reverse again. The pair continues to trade sideways with $1.30 the topside barrier and $1.28 a downside support for now. GBP/EUR remains 1.4% down month-to-date, but is still two cents above its 2-year average of €1.17.
Robust demand in financial and consumer services drove UK services sector growth to its strongest since August last year and surpassing market forecasts. The manufacturing sector continues to underwhelm, with the PMI reading pointing to the sixth straight month of worsening conditions and pushing the index to the lowest since late 2023. However, because service industries account for 80% of total UK economic output, this bodes well for the economy’s growth numbers for the first quarter, following the sluggish growth over the last half of 2024. Coupled with the slightly hawkish Bank of England (BoE) meeting last week, this data adds to the market skepticism around how much the BoE will cut rates this year, particularly when wage growth and inflation appear so sticky. Indeed, within the services PMI data, on the price front, service providers recorded a steep rise in input prices, largely reflecting intense wage pressures and efforts by suppliers to pass on higher payroll costs.
All-in-all, money markets are pricing a 60% chance of a quarter-point rate cut by the BoE in May, and only 45 basis points of easing this year compared to over 60 at the start of the month. This repricing will limit any gains in front-end gilts and should also prove constructive for sterling via the yield channel. However, inflation data and the Spring Statement on Wednesday risk generating a fresh gust of headwinds for bullish GBP traders.
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
US equity markets are still in drawdown territory, with the S&P 500 around 7% from its recent peak, whilst FX speculators have turned bearish on the US dollar for the first time since October. Heightened uncertainty surrounding tariff policy and fears of a US economic slowdown have driven these moves. But comments from President Trump on his tariff plans and flash PMI data called into question these fears fears, helping stocks rebound and the dollar rise across the board.
It wasn’t all rosy. Manufacturing unexpectedly slipped back below 50, indicating contraction. Input price inflation soared to a near 2-year high, especially in manufacturing, due to tariffs. And business expectations for the year ahead dropped to their second-lowest since October 2022 amid growing caution due to demand concerns and Trump’s administration policies. However, investors focussed on the good news. The composite PMI reading jumped to 53.5, much higher than expected, driven by the larger services component, which rebounded strongly to a 3-month high after hitting a 15-month low in February. This rebound was driven by improved business inflows, strengthening customer demand and better weather conditions. Overall, recession fears appear to be easing.
Aside from yesterday’s services PMI though, we’ve seen a lot of “soft” data print weaker than expected over the last couple of months, while “hard” data, like employment, industrial output, consumer spending, has been resilient. Based on this real lagging data, we are not anywhere near a recession, but the divergence between soft and hard data is creating confusion about the true state of the economy. All of this culminates in an exceptionally murky outlook for monetary policy, as the Federal Reserve remains highly data-dependent. Cutting rates too soon risks stoking inflation, at a time when inflation expectations are on the rise, while keeping rates too high could weigh on growth.
In any case, the selling pressure on the dollar is already fading, helped by the strong PMI data and wavering US slowdown fears, but also because reports emerged that President Donald Trump’s April 2 tariffs are poised to be softer and more targeted than initially anticipated. However, even if tariff risks and recession fears escalate, we don’t expect the dollar to be shunned completely, purely due to its safe haven appeal in times of rampant risk aversion.
Euro down on buyers’ fatigue
Boris Kovacevic – Global Macro Strategist
The euro extended its decline for a fourth consecutive session, with EUR/USD slipping to $1.08 despite relatively resilient PMI data and signs of flexibility from President Trump on the tariff front.
The eurozone’s latest economic activity indicator showed the fastest expansion in seven months, with the composite PMI inching up to 50.4. While this was slightly below market expectations, the manufacturing sector outperformed, offering a glimpse of optimism for an economy that has struggled with stagnation. Germany led the improvement, as anticipation builds over the economic boost from its newly approved fiscal expansion focused on infrastructure and defense.
Yet, despite these glimmers of recovery, the euro’s recent rally has run out of steam. After surging to a six-month high of $1.0955 last week on optimism over Germany’s fiscal shift, the common currency has been unable to hold onto those gains. The passage of the debt brake reform in Germany’s upper house of parliament last Friday marked a historic shift in European fiscal policy, but the market reaction suggests that much of the optimism was already priced in.
Investors now appear to be looking for tangible signs that fiscal stimulus will translate into stronger growth, particularly in light of ongoing global trade uncertainties. Meanwhile, Trump’s latest remarks on tariffs injected some relief into markets, with the US president signaling openness to a more measured approach. The path forward for the euro will likely hinge on whether this fiscal-driven optimism can be sustained and whether the manufacturing recovery proves durable in the coming months.
Sturdy start for sterling
George Vessey – Lead FX & Macro Strategist
Sterling started the new week on a stronger footing against many major peers after PMI data revealed UK business activity growth hit a 6-month high in a sign of an economic recovery in Q1. Then came the stronger US PMI figures, which sent GBP/USD into reverse again. The pair continues to trade sideways with $1.30 the topside barrier and $1.28 a downside support for now. GBP/EUR remains 1.4% down month-to-date, but is still two cents above its 2-year average of €1.17.
Robust demand in financial and consumer services drove UK services sector growth to its strongest since August last year and surpassing market forecasts. The manufacturing sector continues to underwhelm, with the PMI reading pointing to the sixth straight month of worsening conditions and pushing the index to the lowest since late 2023. However, because service industries account for 80% of total UK economic output, this bodes well for the economy’s growth numbers for the first quarter, following the sluggish growth over the last half of 2024. Coupled with the slightly hawkish Bank of England (BoE) meeting last week, this data adds to the market skepticism around how much the BoE will cut rates this year, particularly when wage growth and inflation appear so sticky. Indeed, within the services PMI data, on the price front, service providers recorded a steep rise in input prices, largely reflecting intense wage pressures and efforts by suppliers to pass on higher payroll costs.
All-in-all, money markets are pricing a 60% chance of a quarter-point rate cut by the BoE in May, and only 45 basis points of easing this year compared to over 60 at the start of the month. This repricing will limit any gains in front-end gilts and should also prove constructive for sterling via the yield channel. However, inflation data and the Spring Statement on Wednesday risk generating a fresh gust of headwinds for bullish GBP traders.
*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
Aussie climbs from lows
The Australian dollar and other economically-sensitive currencies were higher overnight after US president Donald Trump offered some relief on tariffs.
Trump said he planned to announce reciprocal tariffs next week but also suggested the potential for some exemptions saying “I may give a lot of countries breaks.”
Financial markets were higher on the news with the S&P 500 up 1.4% and the Nasdaq up 2.1%.
In FX, the reactions were more muted, with the AUD/USD up 0.2% as it climbed from two-week lows. Looking forward tonight’s Australian Federal Budget will be in focus.
USD/SGD at three-week highs
At 16:00 AEDT on Wednesday, Singapore industrial production is due.
With electronics output growth staying in the double digits amidst the global tech upcycle, we anticipate industrial production growth to ease to 8.5% year-over-year in February from 9.1% in January.
A further relaxation of the S$NEER policy band may result from a further increase in global tariffs, which would also have a negative effect on H2 growth.
However, this is not being factored into rates or the S$NEER by the markets.
Looking at USD/SGD, trending higher, now above the average for last six months.
USD buyers may take advantage of current spot of 1.3350-1.3400, where USD/SGD is at its 5-month low.
Japanese PMI enters a contraction
Japan’s au Jibun Bank flash composite PMI for March was 48.5, marking the lowest level in three years and a decline from 52 the previous month.
Services at 49.5 and Manufacturing PMI at 48.3 were both lower than previous readings of 53.7 and 49, respectively.
USD/JPY, currently 149.71 as of this writing, slowly edges up toward its 50-day and 200-day strong MA resistance levels, on the daily chart, where USD buyers may look to take advantage.
The AUD/JPY was also stronger as it neared one-month highs.
Similarly for SGD/JPY, the next key resistance levels of 112.50 at 50-day and 113.11 at 200-day moving averages are key to watch.
USD/CNY at highs
Table: seven-day rolling currency trends and trading ranges
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
On March 15th, Canadian trade representatives met with top U.S. officials from President Trump’s administration. Representing the United States were Commerce Secretary Howard Lutnick and U.S. Trade Representative Jamieson Greer. Canada’s delegation included Finance Minister Dominic LeBlanc, Industry Minister François-Philippe Champagne, Ontario Premier Doug Ford, Canada’s ambassador to the U.S., Kirsten Hillman, and Ontario’s Washington representative, David Paterson.
The discussion shed light on the rationale behind tariffs and how these early-year ideas have evolved as the April 2nd deadline for the “America First Trade Policy” approaches:
“Trump is just bluffing”: David Paterson described tariffs as a historic shift in U.S. trade policy, now a global strategy. The U.S. plans to impose sector-specific tariffs worldwide starting April 2nd. Countries with strong U.S. relations will be “first in line” to negotiate adjustments.
“Tariffs are bargaining tools”: Trump’s advisors clarified that tariffs serve different purposes. Tactical tariffs are used to secure concessions, while structural tariffs aim to reshape global trade. Whether structural tariffs will target all countries or focus on those with large U.S. trade deficits remains undecided.
“Tariffs will be temporary”: Beginning April 2nd, tariffs will become a cornerstone of U.S. trade policy. They’re not just a revenue source but a tool to attract investment.
“Tariffs won’t last long, Trump-put must come at some point”: Maybe markets will have to wait, and maybe tariffs will stay for the long-run. One thing is certain, Trump’s goal is to bring manufacturing to the U.S. and push companies to establish American operations, even at the cost of short-term market pain and inflation.
For Canada, tariffs are inevitable. Trump’s determination to proceed means global uncertainty will linger. In North America, this likely spell slower growth, higher unemployment, and rising inflation in the short term.
This week will will bring more data on consumer and business sentiment, with the release of March S&P PMIs on focus today. In Canada, the Loonie remains steady as PM Mark Carney announces an early election for April 28.
Risks around “fiscal and trade policies”
Boris Kovacevic – Global Macro Strategist
Equities managed to stage a late-week rebound, but uncertainty remains the dominant theme in markets. New York Fed President John Williams and Chicago Fed President Austan Goolsbee both emphasized the elevated risks surrounding fiscal and trade policies, with Williams noting that monetary policy is well-positioned to adapt to evolving conditions. Goolsbee acknowledged the economic uncertainty but expressed confidence that if inflation continues to ease, rates will likely be lower in 12 to 18 months.
Traders in the currency market have turned bearish on the US dollar for the first time since 2016, with hedge funds and asset managers now net-short on the Greenback. This shift highlights growing concerns over trade policies, inflation risks, and uncertainty surrounding the Federal Reserve’s next steps. Economic data remains mixed, with sentiment surveys indicating a slowdown amid fears of tariffs and fiscal tightening, while official employment and manufacturing statistics suggest resilience. This divergence has heightened uncertainty across financial markets, prompting the Fed to lower its growth projections and the OECD to warn that US trade policies could drag on global economic momentum.
While Fed Chair Jerome Powell acknowledged these risks, he noted that “hard data” has yet to confirm a significant downturn. Despite this, the US dollar has struggled to benefit from safe-haven demand as investors weigh the long-term impact of policy shifts. Adding to the uncertainty, President Trump is set to announce a new wave of “reciprocal tariffs” on April 2, aimed at countering trade imbalances with foreign partners. Although these measures are expected to be more targeted than previous threats, their broader economic implications remain unclear.
Euro under pressure
Boris Kovacevic – Global Macro Strategist
The euro extended its losing streak on Friday, with EUR/USD falling to $1.08 after a third consecutive daily decline. The common currency had been on track for a third straight weekly gain, but weaker-than-expected economic data and a stronger US dollar weighed on sentiment.
Consumer confidence in the Eurozone fell more than forecast in March, with the index dropping to -14.5, disappointing expectations for an improvement. The broader EU measure also declined, reinforcing concerns that households remain cautious despite moderating inflation. In France, manufacturing sentiment deteriorated further, with the climate indicator slipping to 96, its lowest since November. Weakening order books, particularly for foreign demand, contributed to the decline, highlighting ongoing external pressures on European industry.
EUR/USD’s pullback reflects a combination of factors, including renewed US dollar strength as markets reassess the Fed’s rate outlook. While the Fed kept rates unchanged last week, officials maintained their projections for two rate cuts this year, but with inflation risks still in focus. Meanwhile, investors remain wary of Trump’s upcoming tariff announcement on April 2, which could add further pressure on global trade and weigh on European growth prospects.
Germany’s fiscal expansion has been a key driver of recent euro strength, but with much of that now priced in, the currency’s upside appears more limited. The ECB’s cautious stance also adds to the uncertainty, as policymakers weigh softening growth data against sticky inflation. If economic sentiment continues to weaken, expectations for a rate cut in the coming months could rise, putting further pressure on the euro. For now, EUR/USD remains vulnerable to external headwinds, with risks tilted toward further downside if the US dollar continues to recover.
Monetary caution and fiscal consolidation influence pound
George Vessey – Lead FX & Macro Strategist
The British pound has experienced mixed fortunes recently, influenced by global trade tensions, monetary policy decisions, and domestic economic challenges. GBP/USD has shown resilience, holding above $1.29, supported by the Fed’s cautious stance and expectations for rate cuts in 2025. However, the pair faces headwinds from broader risk aversion and geopolitical uncertainties. Meanwhile, GBP/EUR is back above €1.19, since the optimism over fiscal reforms in Europe appear to be baked into the common currency’s valuation.
Looking ahead, the pound’s outlook remains tied to key economic data and policy developments. This week, flash PMIs will offer a first read on how business activity is holding considering policy uncertainty. Additionally, UK inflation data and employment figures will provide insights into the domestic economy’s health and the Bank of England’s (BoE) policy trajectory. The BoE’s hawkish hold last week offered sterling some support, but it’s vulnerable to a dovish repricing if inflation surprises lower. The biggest risk event we see for the pound this week though is the Spring Statement on Wednesday, as Chancellor Rachel Reeves addresses rising debt interest costs and fiscal challenges. Investors will closely monitor updates from the Office for Budget Responsibility (OBR) and any hints of tax changes or spending cuts.
Looking ahead, GBP/USD and GBP/EUR remain caught in a delicate balance between modest domestic resilience and external pressures. While the pound benefits from stable growth prospects and a hawkish tilt from the BoE, rising trade tensions with the US and global economic uncertainties could limit upside potential. Interestingly though, the pound has exhibited a negative correlation with US equites over the past month, the most negative since 2014, which supports our view of this fading rotation from US stocks to European seemingly helping the dollar out more due to increased flows into US assets.
*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.
Equities managed to stage a late-week rebound, but uncertainty remains the dominant theme in markets. New York Fed President John Williams and Chicago Fed President Austan Goolsbee both emphasized the elevated risks surrounding fiscal and trade policies, with Williams noting that monetary policy is well-positioned to adapt to evolving conditions. Goolsbee acknowledged the economic uncertainty but expressed confidence that if inflation continues to ease, rates will likely be lower in 12 to 18 months.
Traders in the currency market have turned bearish on the US dollar for the first time since 2016, with hedge funds and asset managers now net-short on the Greenback. This shift highlights growing concerns over trade policies, inflation risks, and uncertainty surrounding the Federal Reserve’s next steps. Economic data remains mixed, with sentiment surveys indicating a slowdown amid fears of tariffs and fiscal tightening, while official employment and manufacturing statistics suggest resilience. This divergence has heightened uncertainty across financial markets, prompting the Fed to lower its growth projections and the OECD to warn that US trade policies could drag on global economic momentum.
While Fed Chair Jerome Powell acknowledged these risks, he noted that “hard data” has yet to confirm a significant downturn. Despite this, the US dollar has struggled to benefit from safe-haven demand as investors weigh the long-term impact of policy shifts. Adding to the uncertainty, President Trump is set to announce a new wave of “reciprocal tariffs” on April 2, aimed at countering trade imbalances with foreign partners. Although these measures are expected to be more targeted than previous threats, their broader economic implications remain unclear.
Euro under pressure
Boris Kovacevic – Global Macro Strategist
The euro extended its losing streak on Friday, with EUR/USD falling to $1.08 after a third consecutive daily decline. The common currency had been on track for a third straight weekly gain, but weaker-than-expected economic data and a stronger US dollar weighed on sentiment.
Consumer confidence in the Eurozone fell more than forecast in March, with the index dropping to -14.5, disappointing expectations for an improvement. The broader EU measure also declined, reinforcing concerns that households remain cautious despite moderating inflation. In France, manufacturing sentiment deteriorated further, with the climate indicator slipping to 96, its lowest since November. Weakening order books, particularly for foreign demand, contributed to the decline, highlighting ongoing external pressures on European industry.
EUR/USD’s pullback reflects a combination of factors, including renewed US dollar strength as markets reassess the Fed’s rate outlook. While the Fed kept rates unchanged last week, officials maintained their projections for two rate cuts this year, but with inflation risks still in focus. Meanwhile, investors remain wary of Trump’s upcoming tariff announcement on April 2, which could add further pressure on global trade and weigh on European growth prospects.
Germany’s fiscal expansion has been a key driver of recent euro strength, but with much of that now priced in, the currency’s upside appears more limited. The ECB’s cautious stance also adds to the uncertainty, as policymakers weigh softening growth data against sticky inflation. If economic sentiment continues to weaken, expectations for a rate cut in the coming months could rise, putting further pressure on the euro. For now, EUR/USD remains vulnerable to external headwinds, with risks tilted toward further downside if the US dollar continues to recover.
Monetary caution and fiscal consolidation influence pound
George Vessey – Lead FX & Macro Strategist
The British pound has experienced mixed fortunes recently, influenced by global trade tensions, monetary policy decisions, and domestic economic challenges. GBP/USD has shown resilience, holding above $1.29, supported by the Fed’s cautious stance and expectations for rate cuts in 2025. However, the pair faces headwinds from broader risk aversion and geopolitical uncertainties. Meanwhile, GBP/EUR is back above €1.19, since the optimism over fiscal reforms in Europe appear to be baked into the common currency’s valuation.
Looking ahead, the pound’s outlook remains tied to key economic data and policy developments. This week, flash PMIs will offer a first read on how business activity is holding considering policy uncertainty. Additionally, UK inflation data and employment figures will provide insights into the domestic economy’s health and the Bank of England’s (BoE) policy trajectory. The BoE’s hawkish hold last week offered sterling some support, but it’s vulnerable to a dovish repricing if inflation surprises lower. The biggest risk event we see for the pound this week though is the Spring Statement on Wednesday, as Chancellor Rachel Reeves addresses rising debt interest costs and fiscal challenges. Investors will closely monitor updates from the Office for Budget Responsibility (OBR) and any hints of tax changes or spending cuts.
Looking ahead, GBP/USD and GBP/EUR remain caught in a delicate balance between modest domestic resilience and external pressures. While the pound benefits from stable growth prospects and a hawkish tilt from the BoE, rising trade tensions with the US and global economic uncertainties could limit upside potential. Interestingly though, the pound has exhibited a negative correlation with US equites over the past month, the most negative since 2014, which supports our view of this fading rotation from US stocks to European seemingly helping the dollar out more due to increased flows into US assets.
*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
USD gains for third day following Fed
The US dollar was higher on Friday, with the USD index reaching three-week highs, as markets continued to react to last week’s Federal Reserve decision.
The Fed kept interest rates on hold in the 4.25% to 4.50% range with markets now more concerned that an uptick in inflation means the US central bank might be less likely to cut interest rates.
The US dollar was stronger on Friday, its third consecutive gain, as it climbed from five-month lows.
The Aussie and kiwi both fell as the USD gains. The AUD/USD fell 0.5% while NZD/USD lost 0.4%.
In Asia, the USD gains were more moderate. The USD/SGD gained 0.1% while USD/CNH also climbed 0.1%,
US PMIs set to moderate from February highs
Tonight at 12.45am AEDT, US PMIs (purchasing manager indexes) will be released – the most up-to-date reading of the US economy.
After hitting a multi-year high in February, the preliminary S&P manufacturing PMI most likely decreased slightly in March.
Most recently, business activity dropped significantly, according to the NY Fed services survey. After an unexpected fall in February, the S&P services survey employment index most likely reverted to expansionary territory.
Financial markets will also be looking to other key PMI numbers, with Japanese, European and UK PMI number due over the next 24 hours.
The key focus for FX markets will be whether the recent gains in the euro and GBP can be maintained. Will PMI activity numbers reflect the outperformance in European FX? If not, the EUR/USD and GBP/USD might be vulnerable, although the euro and GBP might maintain recent gains versus APAC FX.
Focus on inflation and GDP this week
Later this week, the calendar is filled with critical inflation data in the final week of March. UK and Australia will release CPI figures on Wednesday. Tokyo CPI YoY data will follow on Friday.
These inflation prints will be closely watched by markets as they assess the trajectory of monetary policy normalization across major economies.
Multiple consumer-related indicators will provide insights into economic health, with US consumer confidence due Wednesday.
Later in the week, US Personal Spending data on Friday, coupled with PCE Core Index YoY and Core PCE Price Index MoM, will offer a comprehensive view of American consumer behaviour and inflationary pressures. PCE is a key focus of the Federal Reserve.
The week features several significant growth indicators across major economies. US will report its GDP on Thursday. Friday brings GDP data from multiple regions, including the UK and Canada.
These releases will help shape market expectations for economic performance heading into Q2.
Aussie, kiwi slip
Table: seven-day rolling currency trends and trading ranges
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
This week brought two big updates on inflation in North America. First, core inflation in Canada is still stubbornly high. Second, the U.S. Federal Reserve acknowledged that elevated core inflation isn’t going anywhere soon. They even raised their CPI and PCE projections for the coming months, blaming “tariff-induced inflation.”
Central banks play a key role in keeping long-term inflation expectations steady. But recent data and surveys have put them under the spotlight. In the U.S., for example, Fed Chair Powell pointed out a clash between market indicators and survey results. The University of Michigan’s latest survey shows consumers expect prices to rise by 3.9% annually over the next 5 to 10 years. Meanwhile, the Fed’s preferred measures—5-year forward breakevens and 10-year TIPS—suggest long-term inflation expectations are steady at 1.8% and 2.2%, which aligns with price stability. Why the gap? It could be due to over-reaction to current policies, the University of Michigan’s switch to online-only surveys, or even political leanings. For instance, Republicans predict just 0.1% inflation for the next year, while Democrats expect 6.5%. Despite these differences, Powell remains confident that long-term expectations are well anchored.
At the FOMC press conference this past Wednesday, Powell also discussed ‘tariff- inflation. He emphasized that not all inflationary pressures need immediate action, especially if they’re likely to resolve on their own. Reflecting on past criticism for calling pandemic inflation “transitory,” he defended the occasional need to wait and see. Meanwhile, Treasury Secretary Scott Bessent argued that Trump ‘47 tariffs would cause a one-time price hike. Powell, however, avoided making any firm commitments, citing the challenges of predicting the broader economic effects of these tariffs.
After last Wednesday’s press conference, it’s clear the Fed is sticking to its cautious approach. In contrast, the Bank of Canada (BoC)’s recent rate cut shows a more pre-emptive stance. Adding to the negative survey data, Canada’s largest small business association, the CFIB, released its 12-month business outlook yesterday. As anticipated, the results confirmed an all-time low in confidence, even worse than during the Global Financial Crisis and the COVID-19 pandemic.
While there’ll be relevant macro data from the U.S. next week, all attention is on April 2nd, where U.S. trade policy will lead the show for central bankers and markets alike.
Post-Fed euphoria fades
Boris Kovacevic – Global Macro Strategist
The post-Fed euphoria proved short-lived, as US equities slipped back into negative territory on Thursday, weighed down by renewed trade uncertainty and ongoing concerns over global growth. After delivering what markets perceived as dovish signals, the Fed had momentarily boosted market sentiment. However, traders are still uncertain about the trajectory of the US economy amid continued policy and geopolitical risks.
The S&P 500 gave back a portion of Wednesday’s gains, with volatility set to rise due to month-end and quarter-end option flows. Meanwhile, the dollar extended its rebound, gaining ground despite falling Treasury yields, as weaker performances from the euro, pound, and Swiss franc helped drive demand for the greenback. The dollar’s strength came as rate expectations for other major central banks were pulled lower. The Bank of England signaled a growing willingness to cut rates, while the Swiss National Bank’s surprise decision to ease policy underscored a more dovish global backdrop. The euro also struggled, with markets digesting softer comments from ECB policymakers regarding the pace of future rate cuts.
On the economic front, US data remained mixed. Initial jobless claims rose slightly to 223,000 last week, but remained at historically low levels, reinforcing the notion that the labor market is holding up despite the broader macro uncertainty. Meanwhile, existing home sales surprised to the upside, climbing 4.2% in February to an annualized rate of 4.26 million, as pent-up demand and stable mortgage rates encouraged buyers to return to the market.
Trade tensions remain the primary wild card. Trump’s promise of a “big one” in reciprocal tariffs set to take effect on April 2 continues to hang over markets, with investors uncertain about the scale and scope of the potential measures. Fed Chair Jerome Powell acknowledged these risks but emphasized that policymakers would remain patient, noting that the Fed’s stance is “well-positioned to react to what comes”.
Euro bracing for a weekly decline
George Vessey – Lead FX & Macro Strategist
The euro continues to stumble as heightened risk aversion grips financial markets. EUR/USD logged its sharpest daily decline in March earlier this week and is bracing for its first weekly drop in three. Cautious remarks from European Central Bank (ECB) President Christine Lagarde have likely also contributed to the common currency’s decline against most peers from recent peaks.
The weakness in Asian equity markets has spread to Europe, which are on track to end a four-day winning streak. There doesn’t appear to be a fresh catalyst, so we can only deduce its related to ongoing tariff uncertainty and global growth prospects. The move lower in global equities has also prompted limited demand for haven assets, suggesting some resilience in broader risk sentiment. However, EUR/USD is retreating from a near five-month high of $1.0954, with key moving averages located under $1.08 – potentially downside targets for short-term traders.
Speaking to European lawmakers on Thursday, ECB President Lagarde warned of weaker growth but downplayed inflation risks if the EU retaliated against US tariffs. She cautioned that a 25% US tariff on European imports could cut euro area growth by 0.3 percentage points in the first year, with a counter-tariff deepening the hit to 0.5 percentage points. The sharpest impact would come in the first year, with lingering effects on output, though inflationary pressures would fade over time, signaling the ECB would not respond with higher rates. Meanwhile, progress toward a ceasefire in Ukraine introduced optimism this week, but also fresh uncertainties about Europe’s economic and energy future.
Overall, rising US-EU trade tensions, including Trump’s renewed tariff threats, continue to challenge euro stability. For now, EUR/USD remains trapped between shifting market sentiment and fiscal expectations.
BoE in no rush
George Vessey – Lead FX & Macro Strategist
The Bank of England (BoE) kept rates unchanged at 4.5% as expected, but what comes next is fairly ambiguous amid evident nervousness surrounding the inflation outlook. The vote split was one of the key focus points, and at 8-1, that suggests momentum has shifted in a more hawkish direction. The pound initially pared early losses versus the dollar, but lacked impetus despite markets trimming bets of a rate cut in May.
The BoE’s Catherine Mann, who surprised by dissenting in February in favour of a larger cut, rejoined the majority again by voting to keep rates on hold. Long-standing dove, Swati Dhingra, was the sole dissenter, but scaled back her call for half a point move previously. At the margin, the updated voting pattern leans more hawkish.
The overall message from the BoE was that there had been little in the way of domestic economic developments since the February meeting, but that the degree of global trade policy uncertainty has increased. Though UK economic growth is obviously sluggish, private sector wage growth remains above 6%, while services inflation is bouncing around 5%, and headline inflation is expected to hit almost double the BoE’s 2% target later this year. Based on global uncertainties and subsequent inflation risks, it seems the bar to deviating from the “gradual and cautious” approach to easing is high.
Ultimately, other than the vote split, the rest of the policy statement was largely a reiteration of that issued after the February meeting, hence the limited reaction in sterling and gilts. The overnight index swaps curve was relatively unchanged too, with around 50 basis point of cuts priced in by year-end, although the odds of a May cut were reduced. We still favour a cut in May though, in line with the cut-hold tempo signalled by the BoE.
GBP/USD is on track for its first weekly fall in three as momentum waned around the $1.30 mark – a level the pair has been below for almost two thirds of the post-Brexit period. GBP/EUR on the other hand is firmly back above the €1.19 with the 50-week moving average (€1.1888) offering decent support still. Near-term monetary policies and sterling’s carry advantage due to higher UK yields remains constructive for the cross as UK rates are expected to be closer to 4% whilst Eurozone rates are expected to be near 2% by year-end. However, narrowing growth and real rate differentials should benefit the euro over the medium term, potentially capping upside beyond 2025 peaks.
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
The Fed kept rates unchanged and maintained its forecast for two cuts in 2025, boosting optimism. The S&P 500 surged, posting its best Fed decision day since mid-2022, while hopes of a Ukraine ceasefire added to the bullish sentiment.
The post-Fed rally was short-lived as US equities fell back into negative territory. Trade tensions and concerns over global growth kept investors cautious, with Fed Chair Powell emphasizing a patient and adaptable stance.
ECB President Lagarde warned that EU retaliation against US tariffs could slow growth but downplayed inflation risks. Markets interpreted this as a sign that the ECB would not raise rates in response, pressuring the euro.
The Bank of England left rates at 4.5%,as expected, with an 8-1 vote suggesting a shift toward a more hawkish stance. Policymakers cited little change in domestic conditions but acknowledged rising global trade uncertainty.
Despite remaining in a broader downtrend, the dollar saw renewed demand amid Fed policy uncertainty and geopolitical risks. The DXY index is on track for its first weekly gain in March, supported by shifting Fed expectations.
The EUR/USD reached $1.0955, its highest since October, before losing momentum. Political uncertainty in Germany and the impact of US tariffs could challenge euro strength in the coming months.
Global Macro Markets post-Fed flip-flop
Initial positivity…Markets roared back to life on Wednesday after the Federal Reserve (Fed) kept rates unchanged and maintained its forecast for two rate cuts this year, while optimism grew around a potential ceasefire in Ukraine. Equities surged, with the S&P 500 recording its best Fed decision day since July 2022.
…stalled. However, the post-Fed euphoria proved short-lived, as US equities slipped back into negative territory on Thursday, weighed down by renewed trade uncertainty and ongoing concerns over global growth. Traders are still uncertain about the trajectory of the US economy amid continued policy and geopolitical risks. Fed Chair Jerome Powell acknowledged these risks but emphasized that policymakers would remain patient, noting that the Fed’s stance is “well-positioned to react to what comes”.
Dovish ECB. Speaking to European lawmakers on Thursday, ECB President Lagarde warned of weaker growth but downplayed inflation risks if the EU retaliated against US tariffs. The sharpest impact would come in the first year, with lingering effects on output, though inflationary pressures would fade over time, signaling the ECB would not respond with higher rates. This weighed on the euro.
Unchanged BoE. The Bank of England (BoE) kept rates unchanged at 4.5% as expected, but what comes next is ambiguous amid evident nervousness surrounding the inflation outlook. The vote split was one of the key focus points, and at 8-1, that suggests momentum has shifted in a more hawkish direction. The overall message from the BoE was that there had been little in the way of domestic economic developments since the February meeting, but that the degree of global trade policy uncertainty has increased.
Week ahead US inflation and European macro check
US inflation in focus. A key focus for the US will be inflation and growth data. On Thursday, the final Q4 GDP reading is expected to confirm a 3.1% expansion, reinforcing the resilience of the economy. However, Friday’s Core PCE Price Index will be the highlight, with markets looking for signs of easing price pressures. Alongside this, personal income and spending data will provide insight into consumer strength, while durable goods orders on Wednesday could indicate business investment trends.
Spring Budget Statement. Britain’s public finances are under pressure, and Chancellor Rachel Reeves will face difficult choices at the Spring Statement on 26 March due to rising debt interest costs. The Treasury has likely lost all of the £10bn ‘headroom’ it had available under its fiscal rules last October, following a rise in government borrowing costs over the winter. While spending cuts may help, they have their limits. Unless the UK economy experiences unexpected growth this summer, further tax increases seem likely in the autumn. The Office for Budget Responsibility is poised to lower its near-term growth forecasts but upgrade its inflation projections.
European sentiment check. The UK’s February CPI report on Wednesday is expected to hold at 3.0% YoY, with any surprises potentially influencing Bank of England rate expectations. The eurozone will see preliminary March inflation readings from France (Friday), while Germany’s GfK Consumer Confidence index (Friday) and Ifo Business Climate survey (Tuesday) will provide a pulse check on economic sentiment. UK retail sales (Friday) will also be in focus, offering a gauge of consumer resilience amid continued economic uncertainty.
FX Views Feel good vibes falter
USD Firms after Fed. The US dollar remains in a downtrend, having shed nearly 6% from its January peak, but the combination of Fed uncertainty and geopolitical risks continues to create pockets of demand. Indeed, the DXY is primed for its first weekly rise this month. The dollar rallied ahead of the Fed’s decision due to hawkish bets but saw corrections post-statement as markets chose to focus on the dovish tilt in balance sheet policy vs. the more hawkish shift in the dot plot. Treasury yields declined, with the two-year note falling below 4% as traders reassessed the Fed’s path forward. Fed Chair Powell’s confidence in avoiding a deep recession or prolonged inflation also favoured risker assets. However, the fading rotation from US to European equities supports a stabilising view for the dollar in the short term. Upcoming data risks, including jobs and core PCE figures, could challenge Fed pricing and macro sentiment stabilisation is needed to sustain a USD recovery. The introduction of universal US tariffs on April 2 may be the catalyst to provide fresh momentum for the greenback in the second quarter.
EUR Peak optimism already?The euro rose to $1.0955 versus the USD – its highest level since October, but momentum waned, with the pair trading back into neutral zone via the 14-day RSI. The common currency failed to gain on Ukraine peace deal hopes and the German Bundestag approval of the debt break constitutional change. Thus, it appears to have fully priced in the benefits of spending reforms, nearing peak optimism on fiscal boosts. Moreover, Germany’s lack of a government and challenging coalition talks could complicate the outlook. Although the German fiscal package should lift pressure from the ECB to support the Eurozone economy, meaning rate differentials should also be supportive for the common currency, the second quarter may bring a reality check for European optimism, especially with US tariffs set to take effect, potentially dampening euro momentum. EUR/USD remains almost 5% higher year-to-date and well above its 200-day moving average support resting nearer $1.07. But the struggle to break above $1.10 suggests a test of this downside target might be in the offing over the next few weeks.
GBP No major impact from BoE. The pound pulled back from overbought territory versus the US dollar this week, after briefly peeking over the $1.30 handle but failing to meaningfully hold and rise beyond. GBP/USD is primed for its first weekly loss in three but remains almost 3% higher month-to-date and circa 7% higher than its 2025 low of $1.21. The BoE’s 8-1 vote to keep rates unchanged did little to move the dial on policy expectations as traders paid more attention to external uncertainties, with global risk aversion denting the risk-sensitive pound’s appeal. Looking further down the line, the $1.35 mark could be a key upside target if the stars align. We’d need global risk sentiment to improve and the US economic outlook to continue worsening alongside rising UK-US yield spreads. Meanwhile, GBP/EUR is already firmly back above the €1.19 mark with the 50-week moving average (€1.1888) offering decent support. Sterling’s carry advantage due to higher UK yields remains constructive for the cross as UK rates are still expected to be closer to 4% whilst Eurozone rates are expected to be near 2% by year-end. However, narrowing growth and real rate differentials should benefit the euro over the medium term, potentially capping upside beyond 2025 peaks.
CHF Easing on downside risks to inflation. EUR/CHF has stayed within a 0.93-0.95 range most of this quarter and broke higher only after news of Germany’s historic plan to ramp up spending. However, traction to the upside loss steam after hitting an 8-month high the week prior. The Swiss franc has seen outsized weekly moves against the euro this month, so the cross was poised ahead of the SNB’s rate decision this week. The franc erased some of its recent gains against most major peers following the SNB’s decision to cut rates to over 2-year lows and cited increasing downside risks to inflation. Interest-rate differentials are taking center stage right now and given the more aggressive easing cycle by the SNB and the bullish fiscal injection for Europe, the path of least resistance for EUR/CHF remains higher in our view. Options traders agree with one-year risk reversals indicating they are the least bullish the franc in nearly eight months. No strong technical resistance in place until the July highs at 0.9774, while the 200-week moving average, which hasn’t been tested in four years, currently stands at 0.9894.
CNYIn tariff preparation mode. The Chinese yuan slipped to a one-week low against the dollar and is set for a weekly decline as USD/CNY battles with its 100-day moving average (MA) to the topside, with its 200-day MA offering decent support at 7.21. The recent uplift in the pair is partly due to the rebound in the US dollar, supported by Fed’s cautious stance on rate cuts. Additionally, renewed trade tensions between the US and China have weighed on sentiment, with concerns over potential tariff escalations. Should the tariff fallout be negative for the yuan though, any decline from there might be moderated given the currency has been kept on the soft side for the past two months. In fact, it’s possible that investors might respond positively and drive a rebound in the yuan if April 2 unfolds without any surprises or outcomes worse than anticipated, leading to a sense of relief in the market.
JPY A topsy-turvy time. USD/JPY nudged above the 150 handle for the second time this month before reversing over 1% as traders digested the latest policy holds from the Bank of Japan and Fed. But the yen is ending the week in the red across the board, primed for its second weekly decline in a row versus the US dollar. While risk aversion typically supports the yen as a safe-haven currency, the broader market focus on global economic uncertainties and the Fed’s cautious stance has bolstered the dollar instead. The BoJ’s measured approach to policy adjustments, despite inflationary pressures, has limited expectations for immediate rate hikes, further weighing on the yen. These dynamics have collectively overshadowed strong domestic CPI data. Options traders have now turned less bullish on the Japanese currency over the coming month, but we think the yen can rely on a narrowing rate spread versus the dollar for support in the weeks ahead if US data continues to disappoint and Fed easing bets thus increase.
CADWaiting for April 2nd. The USD/CAD has been remarkably stable this week, navigating a drama-free tariff environment, hotter-than-expected CPI data, and a post-Fed meeting boost. Inflation was expected to rise following the expiration of a tax break, but the price increases turned out to be surprisingly broad-based, limiting the Bank of Canada’s response to tariffs in the coming meetings. For Canada and the Loonie, the key question remains the longevity of US tariffs and the potential Canadian response. With USMCA/CUSMA renegotiations ongoing until mid-2026, Canada’s immediate focus is on swiftly and effectively securing tariff exemptions. The Loonie has traded within a range of 1.427 to 1.440, finding support at the 20-week SMA of 1.428. Market participants have quickly shorted price increases above 1.439. As Canada awaits April 2, attention next week will shift to US macro data, particularly manufacturing and services PMI, PCE, and consumer confidence reports.
AUD Trapped under ice. The Australian dollar remains mostly pressured with the AUD/USD stuck in a trading range near the five-year lows while the Aussie underperforms in other markets. The Aussie was hit mid-week after the February employment report missed expectations, with a loss of 52.8k jobs, a huge gap from the 30k increase expected. The unemployment rate held steady at 4.1%. The Aussie tumbled on the news, snuffing out an earlier rally, and again rejecting the major resistance level at 0.6400. For now, the AUD/USD remains in a clear trading range between 0.6200 and 0.6400. The risk remains for a further break lower, with the market stuck in a long-term downtrend as evidenced by the downward sloping 200-day moving average. Next week, the February CPI number is key, with a weaker number potentially adding the AUD’s aura of negativity.
MXN Banxico to cut rates by 50 bps to 9%. Banxico is expected to announce another 50bp rate cut on March 27, consistent with its prior guidance in the latest statement and quarterly report. With inflation well within the target range, the central bank is shifting its focus from inflation control to fostering growth.
The currency appears to be aligning with the positive performance of its LatAm peers in recent weeks. Commerce Secretary Lutnick commended Mexico for avoiding retaliatory tariff hikes with the U.S., suggesting that Sheinbaum’s non-confrontational approach is yielding benefits for now. However, markets remain wary of the MXN as April 2 brings uncertainty about how Mexico can evade tariffs in the long term. Speculation grows that Mexico may introduce stricter rules on Chinese imports, particularly in auto parts, along with securing more border defense wins. Such measures could position Mexico as a frontrunner for tariff exemptions post-April 2.
The currency has remained stable, rebounding toward its 200-day SMA and reclaiming the 20 level. Next week, range-bound trading between 19.7 and 20.3 is anticipated, as the Banxico rate cut is largely priced in. Markets will be closely watching how dovish the central bank turns amid medium-term growth risks.
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
The post-Fed euphoria proved short-lived, as US equities slipped back into negative territory on Thursday, weighed down by renewed trade uncertainty and ongoing concerns over global growth. After delivering what markets perceived as dovish signals, the Fed had momentarily boosted market sentiment. However, traders are still uncertain about the trajectory of the US economy amid continued policy and geopolitical risks.
The S&P 500 gave back a portion of Wednesday’s gains, with volatility set to rise due to month-end and quarter-end option flows. Meanwhile, the dollar extended its rebound, gaining ground despite falling Treasury yields, as weaker performances from the euro, pound, and Swiss franc helped drive demand for the greenback. The dollar’s strength came as rate expectations for other major central banks were pulled lower. The Bank of England signaled a growing willingness to cut rates, while the Swiss National Bank’s surprise decision to ease policy underscored a more dovish global backdrop. The euro also struggled, with markets digesting softer comments from ECB policymakers regarding the pace of future rate cuts.
On the economic front, US data remained mixed. Initial jobless claims rose slightly to 223,000 last week, but remained at historically low levels, reinforcing the notion that the labor market is holding up despite the broader macro uncertainty. Meanwhile, existing home sales surprised to the upside, climbing 4.2% in February to an annualized rate of 4.26 million, as pent-up demand and stable mortgage rates encouraged buyers to return to the market.
Trade tensions remain the primary wild card. Trump’s promise of a “big one” in reciprocal tariffs set to take effect on April 2 continues to hang over markets, with investors uncertain about the scale and scope of the potential measures. Fed Chair Jerome Powell acknowledged these risks but emphasized that policymakers would remain patient, noting that the Fed’s stance is “well-positioned to react to what comes”.
Euro bracing for a weekly decline
George Vessey – Lead FX & Macro Strategist
The euro continues to stumble as heightened risk aversion grips financial markets. EUR/USD logged its sharpest daily decline in March earlier this week and is bracing for its first weekly drop in three. Cautious remarks from European Central Bank (ECB) President Christine Lagarde have likely also contributed to the common currency’s decline against most peers from recent peaks.
The weakness in Asian equity markets has spread to Europe, which are on track to end a four-day winning streak. There doesn’t appear to be a fresh catalyst, so we can only deduce its related to ongoing tariff uncertainty and global growth prospects. The move lower in global equities has also prompted limited demand for haven assets, suggesting some resilience in broader risk sentiment. However, EUR/USD is retreating from a near five-month high of $1.0954, with key moving averages located under $1.08 – potentially downside targets for short-term traders.
Speaking to European lawmakers on Thursday, ECB President Lagarde warned of weaker growth but downplayed inflation risks if the EU retaliated against US tariffs. She cautioned that a 25% US tariff on European imports could cut euro area growth by 0.3 percentage points in the first year, with a counter-tariff deepening the hit to 0.5 percentage points. The sharpest impact would come in the first year, with lingering effects on output, though inflationary pressures would fade over time, signaling the ECB would not respond with higher rates. Meanwhile, progress toward a ceasefire in Ukraine introduced optimism this week, but also fresh uncertainties about Europe’s economic and energy future.
Overall, rising US-EU trade tensions, including Trump’s renewed tariff threats, continue to challenge euro stability. For now, EUR/USD remains trapped between shifting market sentiment and fiscal expectations.
BoE in no rush
George Vessey – Lead FX & Macro Strategist
The Bank of England (BoE) kept rates unchanged at 4.5% as expected, but what comes next is fairly ambiguous amid evident nervousness surrounding the inflation outlook. The vote split was one of the key focus points, and at 8-1, that suggests momentum has shifted in a more hawkish direction. The pound initially pared early losses versus the dollar, but lacked impetus despite markets trimming bets of a rate cut in May.
The BoE’s Catherine Mann, who surprised by dissenting in February in favour of a larger cut, rejoined the majority again by voting to keep rates on hold. Long-standing dove, Swati Dhingra, was the sole dissenter, but scaled back her call for half a point move previously. At the margin, the updated voting pattern leans more hawkish.
The overall message from the BoE was that there had been little in the way of domestic economic developments since the February meeting, but that the degree of global trade policy uncertainty has increased. Though UK economic growth is obviously sluggish, private sector wage growth remains above 6%, while services inflation is bouncing around 5%, and headline inflation is expected to hit almost double the BoE’s 2% target later this year. Based on global uncertainties and subsequent inflation risks, it seems the bar to deviating from the “gradual and cautious” approach to easing is high.
Ultimately, other than the vote split, the rest of the policy statement was largely a reiteration of that issued after the February meeting, hence the limited reaction in sterling and gilts. The overnight index swaps curve was relatively unchanged too, with around 50 basis point of cuts priced in by year-end, although the odds of a May cut were reduced. We still favour a cut in May though, in line with the cut-hold tempo signalled by the BoE.
GBP/USD is on track for its first weekly fall in three as momentum waned around the $1.30 mark – a level the pair has been below for almost two thirds of the post-Brexit period. GBP/EUR on the other hand is firmly back above the €1.19 mark having bounced off its 50-week moving average support level just under €1.18. Near-term monetary policies and sterling’s carry advantage due to higher UK yields remains constructive for the cross as UK rates are expected to be closer to 4% whilst Eurozone rates are expected to be near 2% by year-end. However, narrowing growth and real rate differentials should benefit the euro over the medium term, potentially capping upside beyond 2025 peaks.
*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.
