Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
Kiwi leads overnight gains
A second day of strong gains in US sharemarkets boosted global sentiment and helped the AUD/USD near three-month highs and the NZD/USD surge to the highest level since mid-December.
The New Zealand dollar led markets with the NZD/USD up a massive 1.2% as it broke above the recent highs at 0.5775 that have capped gains. The NZD/AUD hit three-month highs.
The AUD/USD was also higher, up 0.9%, but the pair remains within the recent trading range with the Aussie still stuck below key resistance at 0.6400.
In Asia, the US dollar was mostly lower.
The USD/SGD fell 0.3% with the pair back at four-month lows.
The USD/CNH dropped 0.2% with this market also back at four-month lows.
JPY weaker as BoJ looms
Across Asia, the upcoming focus is the announcement of the Bank of Japan’s monetary policy meeting, due Wednesday at 2.00pm AEDT.
We anticipate that the policy rate will remain unchanged. It’s probable that communication will take precedence over policy choices.
We’ll be concentrating on BOJ Governor Kazuo Ueda’s evaluation of the following during the press conference: (1) the rate and scope of wage increases; (2) the slowness of consumer spending; (3) substantial increases in food prices that defy inflation due to the so-called first and second forces; and (4) the unpredictability of US economic policy.
While the USD/JPY was higher overnight, the pair remains down for the second straight month, weighed down by narrowing US-Japan yield spreads and rising safe-haven demand for the JPY.
The Japanese yen fell to one-month lows versus the Australian and Singapore dollars.
GBP remains mostly stronger ahead of BoE
Sticking with central banks, the US Federal Reserve is due Thursday morning while the Bank of England decision is due Thursday at 11.00pm AEDT.
We do not anticipate any policy changes from the Bank of England this month, with the BoE most likely to cut in the meetings that accompany the Monetary Policy Report releases, with a target terminal rate of 3.50%,
The GBP/USD was back at four-month highs overnight. The GBP has recently weakened versus the Aussie and the kiwi – after reaching around five-year highs – but the GBP/SGD remains near one-year highs.
Aussie, kiwi at three-month 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.
Last week, the Mexican peso traded below the 20 level for the first time since November. Mexican President Claudia Sheinbaum chose to continue negotiations with the Trump administration rather than retaliate with tariff hikes against the U.S., delaying any response to U.S. tariffs on steel and aluminum imports. Commerce Secretary Howard Lutnick commended the Mexican President for avoiding tit-for-tat tariff escalations, contrasting this approach with that of the Canadian government. The Mexican peso has gained 4.8% against the USD year-to-date, approaching the 200-day SMA as net short positions unwind.
In contrast, the Loonie has remained flat against the USD year-to-date. Following a tariff-driven 25 bps rate cut by the Bank of Canada, the central bank expressed concerns about an impending crisis, not only due to steel and aluminum tariffs but also because of Canadian countermeasures. Also, as noticed by B.C. Premier David Eby, Canada may not afford to be caught in a trade war with both the United States and China—its two largest trading partners.
Because of this, bearish positioning against the USD/CAD remains historically short.
The USD/CAD reached a high of 1.4521 and a low of 1.434 last week, with significant intraday swings highlighting strong resistance above 1.45 and no signs of easing below 1.43. The Loonie remains above the 20-, 40-, and 60-day SMAs, while implied volatility has dropped significantly. April 2nd will be a key date to assess the broader trajectory of U.S. trade policy and its impact on the Canadian economy. President Trump’s advisors have distinguished between tactical tariffs, used as negotiation tools, and structural tariffs, such as the reciprocal tariffs set to be unveiled in early April, aimed at reshaping U.S. trade policy long-term.
Central bank actions will take center stage this week. After 100 bps of rate cuts in late 2024, the Fed is expected to keep rates unchanged for a second consecutive meeting on Wednesday. On Thursday, the Bank of England is also expected to hold rates steady at 4.5%, while Sweden’s Riksbank is anticipated to maintain rates at 2.25%.
Stocks rebound despite stagflation signs
Boris Kovacevic – Global Macro Strategist
Markets ended the week on a volatile but positive note as investors weighed weaker consumer sentiment versus the lack of news on the tariff front against each other. Despite rebounding initially on Friday, the US dollar remains in a clear downtrend, with investors questioning the long-term effects of tariffs. The University of Michigan survey revealed a sharp drop in US consumer sentiment to a more than two-year low in March. Despite this slowdown and weaker subjective employment prospects, inflation expectations jumped to 4.9% from 4.3%, reflecting growing concerns over President Trump’s incoming tariff plans. This stagflationary mix—weakening growth but rising price expectations—adds to uncertainty in the economic outlook.
US equities ended another week in negative territory, with the S&P 500 plunging 10% in just 16 sessions before staging a Friday rebound. Credit markets echoed growth fears, as junk bond spreads widened. The US dollar is now down about 6% from its January peak and is on track for its worst post-inauguration performance since Nixon’s second term in 1973. Investors are assessing the impact of tariffs, which could support the currency through safe-haven demand but also weigh on sentiment and economic growth, limiting the potential of a recovery.
The upcoming week will feature the Fed’s rate decision, where policymakers are expected to stay on hold. With no immediate rate move anticipated, attention will shift to the Fed’s projections and Powell’s press conference for clues on future policy direction. With rising trade tensions, a weakening labor market, and shifting Fed expectations, volatility is likely to remain elevated heading into the new week. Investors will be closely watching upcoming inflation data, Fed speak, and trade policy developments to gauge the direction of the US economy and the dollar’s next move.
Establishing a higher bottom?
Boris Kovacevic – Global Macro Strategist
The euro extended its gains on Friday, rallying against major peers as a breakthrough in German fiscal policy negotiations lifted sentiment. The deal, which includes sweeping borrowing rule changes and a €500 billion infrastructure fund, is seen as a potential boost to Germany’s economy and broader Eurozone growth. The next Chancellor Friedrich Merz secured the Greens’ backing for the fiscal package, clearing a major political hurdle. The agreement is expected to pass through the outgoing parliament this week.
The common currency has now posted a second straight week of gains against the dollar, pound, and franc. The fiscal revival in Germany could continue to be a tailwind for the euro. However, it will need to be followed by improving sentiment and hard data along the way to secure its potential for another leg higher.
Industrial production actually beat expectations in January, rising by 2% on the month, and reversing a 1.5% fall from the month prior. Wholesale prices rose as well and are now displaying growth rate that is well in positive territory. Markets are still questioning the resolve of the ECB to cut interest rates aggressively this year. The German fiscal package, rising goods and food inflation and tariff risks will be weighted against rapidly falling wage expectations and services inflation.
EUR/USD has been range-bound for about two years now, fluctuating between $1.02 and $1.12 since January 2023. A stabilization around the $1.07 – $1.08 level would be a good sign that we are making higher lows, which could set the pair up for another leg higher. However, this would need to be accompanied by stronger European data or increasing recession risks in the US. For now, markets are watching out for sentiment data and the upcoming Fed meeting.
Resilient sterling awaits BoE decision
George Vessey – Lead FX & Macro Strategist
Despite the downwardly revised UK GDP outlook following a bout of weaker data and ongoing tariff uncertainty, the British pound is holding up relatively firm against its major peers. GBP/USD remains above its 5-year average rate of $1.29, whilst GBP/EUR lingers close to €1.19 – which appears fair value based on real rate differentials. Signs of a rebound in UK inflation likely outweigh the cooling in economic activity, meaning we expect the Bank of England (BoE) to keep rates unchanged this week.
As a risk-sensitive currency, we think the pound is vulnerable to a deeper correction in equity markets, but it’s also likely to be supported by a rebound in risk appetite if Russia-Ukraine ceasefire talks gain traction. No news is also good news when it comes to Trump’s tariff threats, and sterling could be primed for a test of the $1.30 handle depending on whether the euro accelerates higher towards $1.10 versus the US dollar, due to the strong positive correlation between GBP/USD and EUR/USD. All eyes are also on the BoE’s meeting this week though. We expect the BoE to hold Bank Rate at 4.5% on Thursday, stressing heightened uncertainty and data evolving broadly as it expected since February. Markets have not ramped up expectations for BoE easing as much as for the Fed, hence the elevated UK-US yield spread adds to GBP/USD’s constructive backdrop.
The cut-hold tempo by the BoE has become well established and renewed concerns about supply weakness mean it’s very unlikely there will be more than two or three votes for back-to-back rate cuts. Although Catherine Mann, the arch-hawk-turned-dove, may have caught all the headlines last month with her vote for a 50bp rate cut, UK wage growth is at 6%, and services inflation is at 5%, meaning the rest of the committee will likely want to tread cautiously when it comes to cutting.
*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.
Markets ended the week on a volatile but positive note as investors weighed weaker consumer sentiment versus the lack of news on the tariff front against each other. Despite rebounding initially on Friday, the US dollar remains in a clear downtrend, with investors questioning the long-term effects of tariffs. The University of Michigan survey revealed a sharp drop in US consumer sentiment to a more than two-year low in March. Despite this slowdown and weaker subjective employment prospects, inflation expectations jumped to 4.9% from 4.3%, reflecting growing concerns over President Trump’s incoming tariff plans. This stagflationary mix—weakening growth but rising price expectations—adds to uncertainty in the economic outlook.
US equities ended another week in negative territory, with the S&P 500 plunging 10% in just 16 sessions before staging a Friday rebound. Credit markets echoed growth fears, as junk bond spreads widened. The US dollar is now down about 6% from its January peak and is on track for its worst post-inauguration performance since Nixon’s second term in 1973. Investors are assessing the impact of tariffs, which could support the currency through safe-haven demand but also weigh on sentiment and economic growth, limiting the potential of a recovery.
The upcoming week will feature the Fed’s rate decision, where policymakers are expected to stay on hold. With no immediate rate move anticipated, attention will shift to the Fed’s projections and Powell’s press conference for clues on future policy direction. With rising trade tensions, a weakening labor market, and shifting Fed expectations, volatility is likely to remain elevated heading into the new week. Investors will be closely watching upcoming inflation data, Fed speak, and trade policy developments to gauge the direction of the US economy and the dollar’s next move.
Establishing a higher bottom?
Boris Kovacevic – Global Macro Strategist
The euro extended its gains on Friday, rallying against major peers as a breakthrough in German fiscal policy negotiations lifted sentiment. The deal, which includes sweeping borrowing rule changes and a €500 billion infrastructure fund, is seen as a potential boost to Germany’s economy and broader Eurozone growth. The next Chancellor Friedrich Merz secured the Greens’ backing for the fiscal package, clearing a major political hurdle. The agreement is expected to pass through the outgoing parliament this week.
The common currency has now posted a second straight week of gains against the dollar, pound, and franc. The fiscal revival in Germany could continue to be a tailwind for the euro. However, it will need to be followed by improving sentiment and hard data along the way to secure its potential for another leg higher.
Industrial production actually beat expectations in January, rising by 2% on the month, and reversing a 1.5% fall from the month prior. Wholesale prices rose as well and are now displaying growth rate that is well in positive territory. Markets are still questioning the resolve of the ECB to cut interest rates aggressively this year. The German fiscal package, rising goods and food inflation and tariff risks will be weighted against rapidly falling wage expectations and services inflation.
EUR/USD has been range-bound for about two years now, fluctuating between $1.02 and $1.12 since January 2023. A stabilization around the $1.07 – $1.08 level would be a good sign that we are making higher lows, which could set the pair up for another leg higher. However, this would need to be accompanied by stronger European data or increasing recession risks in the US. For now, markets are watching out for sentiment data and the upcoming Fed meeting.
Resilient sterling awaits BoE decision
George Vessey – Lead FX & Macro Strategist
Despite the downwardly revised UK GDP outlook following a bout of weaker data and ongoing tariff uncertainty, the British pound is holding up relatively firm against its major peers. GBP/USD remains above its 5-year average rate of $1.29, whilst GBP/EUR lingers close to €1.19 – which appears fair value based on real rate differentials. Signs of a rebound in UK inflation likely outweigh the cooling in economic activity, meaning we expect the Bank of England (BoE) to keep rates unchanged this week.
As a risk-sensitive currency, we think the pound is vulnerable to a deeper correction in equity markets, but it’s also likely to be supported by a rebound in risk appetite if Russia-Ukraine ceasefire talks gain traction. No news is also good news when it comes to Trump’s tariff threats, and sterling could be primed for a test of the $1.30 handle depending on whether the euro accelerates higher towards $1.10 versus the US dollar, due to the strong positive correlation between GBP/USD and EUR/USD. All eyes are also on the BoE’s meeting this week though. We expect the BoE to hold Bank Rate at 4.5% on Thursday, stressing heightened uncertainty and data evolving broadly as it expected since February. Markets have not ramped up expectations for BoE easing as much as for the Fed, hence the elevated UK-US yield spread adds to GBP/USD’s constructive backdrop.
The cut-hold tempo by the BoE has become well established and renewed concerns about supply weakness mean it’s very unlikely there will be more than two or three votes for back-to-back rate cuts. Although Catherine Mann, the arch-hawk-turned-dove, may have caught all the headlines last month with her vote for a 50bp rate cut, UK wage growth is at 6%, and services inflation is at 5%, meaning the rest of the committee will likely want to tread cautiously when it comes to cutting.
*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 sharemarkets recover after horror week
US sharemarkets recovered on Friday after a horror week that saw US shares down as much as 5.0% at one point, but Friday’s rebound saw the benchmark US S&P 500 up 2.1% on Friday and end the week down only 1.4%.
In FX markets, the Australian and NZ dollars were both higher on Friday helped by improving global sentiment.
The AUD/USD gained 0.6% with the pair in a clear trading range between 0.6200 and 0.6400 in which the pair has been stuck since early February.
The NZD/USD climbed 0.8% with this pair also in an obvious trading range between 0.5600 and 0.5775.
In Asia, the greenback eased from recent short-term highs, with the USD/SGD and USD/CNH both down 0.2%.
Fed, BoJ and BoE all due in massive week
The upcoming week features several critical central bank decisions, including the Federal Reserve’s FOMC and the Bank of England.
Meanwhile, the Bank of Japan is expected to hold its target rate steady at 0.5% on Wednesday, with no major surprises anticipated.
Inflation remains a primary concern, with key CPI readings from the Eurozone (Wednesday), Japan (Friday), and Canada (Tuesday).
Australia’s labour market data for February, including unemployment (expected to remain steady at 4.0%) and employment change (consensus: +28k), will also be closely watched for signs of resilience.
Growth indicators also dominate the agenda, with New Zealand’s Q4 GDP report (consensus: +0.4% QoQ) likely to draw attention, especially after the previous contraction of -1.0%.
On Tuesday, Germany’s ZEW survey results are expected to shed light on business sentiment (previous expectations: 26), while US housing starts data will provide another perspective on the state of the real estate market.
China braces for tariff turbulence
This Monday at 1.00pm AEDT, the retail sales figures for China will be revealed.
With the help of the extended Lunar New Year break, the enlarged consumer trade-in program, and some wealth benefits from the recent stock market boom, we anticipate that retail sales growth will accelerate to 4.0% year over year in January and February from 3.7% in December.
We see potential risk of further increase in tariffs on China on 2 April. Based on our estimation, the existing 32% tariffs on China is not yet fully priced in.
USD/CNH currently sits at 50-week moving average support 7.2242, where USD buyers may look to take advantage.
Aussie, kiwi higher, but remain in respective ranges
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.
The S&P 500 has entered correction territory, down 10% from its February peak, wiping out $5 trillion in value. With economic slowdown concerns rising, there is an increasing risk that this correction could turn into a bear market.
February inflation came in lower than expected (headline CPI at 2.8%, core CPI at 3.1%), briefly halting the stock selloff. However, one-off factors played a major role, and businesses are raising prices ahead of potential tariffs.
President Trump announced a 200% tariff on European wine, champagne, and spirits while maintaining steel and aluminum duties. Canada and the EU are retaliating, increasing fears of a trade war that could weigh on economic growth.
Markets expect the Fed to hold rates at 4.5% until June, but with inflation lingering and economic sentiment worsening, next week’s FOMC decision will be key. Powell’s comments on the rate outlook could determine the dollar’s direction
Russian President Putin hinted at the possibility of renewed energy cooperation with the US, causing European natural gas prices to drop. This speculation comes as Trump pushes for an end to the war in Ukraine
UK GDP shrank 0.1% in January, missing expectations and signaling continued economic stagnation. Despite this, the Bank of England is expected to hold rates at 4.5% due to persistent inflation risks, keeping pressure on UK assets
The US dollar rebounded after a 7-day losing streak but remains down 5% from its 2025 peak, caught between trade-related volatility and Fed rate expectations.
Global Macro Another week adding to global complexity
Correction. Investors continue to display a cautious stance amid tariff uncertainty and macro ambiguity. It isn’t surprising to see that the market rout resumed this week, sending the S&P 500 into correction territory as equities continued their three-week slide. The equity index is now down 10% from its February peak, equating to around $5 trillion of value lost. Around a quarter of all corrections turn into bear market, a scenario that increases in likelihood when the economy is slowing down such as now.
Cooler inflation, for now. A surprisingly cool set of February US consumer price inflation prints m/m pulled the annual rate of headline inflation down to 2.8% from 3% while core inflation dips to 3.1% from 3.3%. This halted the stock selloff that had put the S&P 500 on the verge of a correction. The details are less rosy though with a substantial 4% m/m drop in air fares (highly volatile) the main factor driving the softer inflation readings. Moreover, there’s brewing anecdotal evidence of firms pre-emptively raising prices ahead of potential tariffs with this week’s NFIB survey reporting a 10-point jump in the proportion of companies raising prices.
Focus on tariffs. Despite a softer US inflation print earlier in the week, escalating trade tensions weighed heavily on sentiment. President Trump announced a potential 200% tariff on European wine, champagne, and spirits, doubling down on trade tensions just a day after vowing to keep steel and aluminum duties in place.
Fed to remain cautious. Market pricing now suggests the Federal Reserve will stay put until June, though persistent inflation and deteriorating sentiment are complicating the policy path. Next week’s Fed decision and economic projections will be crucial, as investors look for clarity on how officials will balance stubborn inflation with weakening economic momentum.
Floating a deal. Natural gas futures plunged after Russian President Vladimir Putin floated the possibility of renewed energy cooperation with Washington. Speaking in Moscow, Putin suggested that if the US and Russia reached a deal on energy, pipeline gas to Europe could be restored. This speculation comes as US President Donald Trump intensifies his efforts to broker an end to the war in Ukraine, leading some to wonder whether energy trade restrictions might be loosened as part of a broader peace framework.
Tit-for-tat. President Trump’s latest tariff escalation has further rattled financial markets. Trump announced he would double planned steel and aluminum tariffs on Canada to 50% in response to Ontario’s tax hike on electricity exports. The administration has also announced a potential 200% tariff on European wine, champagne, and spirits. Canada and the EU are responding accordingly in a sign that the global trade war is ratcheting up. President Trump made it clear that he intends to retaliate against the EU’s countermeasures once again. This tit-for-tat will raise the already elevated tensions between both regions and could limit the upside on the euro for now.
UK wobble. The UK economy shrank 0.1% in January on a monthly basis, versus an expected expansion of 0.1% and markedly lower than December’s 0.4% print. However, the 3-month rolling average ticked up from 0.1% to 0.2%. It’s still a blow to the UK’s Labour party that has pledged to bring an end to over a decade of stagnation. Despite the slowing UK economy, the Bank of England is expected to keep its Bank Rate on hold at 4.5% next week due to growing inflationary risks.
Week ahead Central banks convene
Next week’s market action will be dominated by central bank decisions and key sentiment data, with the Federal Reserve (FOMC), Bank of Japan (BoJ), Bank of England (BoE), and Swiss National Bank (SNB) all set to announce rate decisions.
The FOMC decision on March 19 will be the highlight of the week, with the Fed widely expected to keep rates unchanged at 4.5%. However, Chair Jerome Powell’s guidance will be key, as markets seek clarity on when rate cuts may begin.
Recent inflation readings suggest price pressures are moderating but remain above target, leaving the Fed in a difficult position. If Powell signals a later start to rate cuts, the US dollar could strengthen, while equities might face renewed pressure.
In Europe, the focus will be on inflation, as Eurozone CPI figures (March 19) will reveal how price trends are evolving. While headline and core CPI are expected to hold steady at 2.4% and 2.6% y/y, any surprises could influence ECB rate expectations.
Meanwhile, the BoE rate decision (March 20) is expected to keep rates at 4.5%, but UK labor market data coming out earlier that day should swing sentiment towards on or the other direction within the Board.
The only sentiment data for Europe will come in the form of the ZEW and European Commission surveys. They could show a significant uptick in business confidence due to the fiscal plan announced in Germany. The boost will be needed if the euro wants to maintain its upward trajectory.
FX Views Consolidation amidst competing narratives
USD Searching for a bottom. The US dollar index snapped a 7-day decline earlier this week as European FX softened on trade policy uncertainty. The dollar remains close to pre-election levels though, still down over 3% on the month and over 5% from its 2025 peak. The US dollar remains caught between trade-related volatility, Fed repricing, and shifting risk sentiment. While the Trump administration’s aggressive stance on tariffs could provide short-term safe-haven support, investors are increasingly focusing on the longer-term economic damage. If trade uncertainty continues to weigh on equities and growth, the dollar’s safe-haven bid may not be enough to offset structural headwinds. With Trump’s tariff deadline fast approaching and recession risks climbing, next week’s Fed guidance could be the deciding factor in whether the dollar extends its recent slide or stages a comeback. In the very short-term – the upcoming US retail sales data on Monday poses a downside risk to the dollar if a rebound fails to materialize.
EUR Softens on trade war fears. The euro extended its gain to $1.0947 this week, briefly erasing all of its post-US election losses. With US growth scares and unwinding of Trump trades weighing on the dollar, and higher European spending proposals boosting European growth prospects and yields, the pair recorded its biggest weekly gain (4.5%) since 2009 at the start of March. Momentum has unsurprisingly waned though amidst fresh uncertainty surrounding trade and energy policy. With tariff threats still unresolved and economic risks lingering, EUR/USD remains stuck between competing narratives—fiscal optimism on one side, external uncertainty on the other. There is scope for EUR/USD to reclaim the levels of around $1.11 that prevailed before the markets started front-running the idea of the Trump trade though. In fact, real rate differentials suggest $1.15 could be on the cards later this year. A key obstacle to this is the escalating trade war, but we think if a German fiscal deal is achieved next week, EUR/USD should continue scaling higher.
GBP Eyes on the $1.30 prize. Sterling climbed to a fresh 2025 peak of $1.2988 on Wednesday, within a whisker of the key $1.30, before retracing as tariff headlines hit risk sentiment. GBP/USD is still almost 3% up month-to-date, and almost two cents above its 5-year average of $1.28, and the pair has dipped out of the overbought zone indicated by the 14-day relative strength index. Aside from improving UK growth and rate differentials relative to the US favouring the pound, the strong positive correlation between EUR/USD and GBP/USD should help the sterling’s uplift against the dollar. But the euro’s strength doesn’t bode well for GBP/EUR. The pair did snap a run of six consecutive daily losses though as focus turned to EU-US trade war risks following the EU’s retaliation to US tariffs. However, GBP/EUR is down 1.6% this month and if it closes the week below its 50-week moving average support level, we think a slide towards €1.1740 is feasible over the coming month. Otherwise, the pair might stay bound to a tight range given real rate differentials suggests €1.19 is fair value. Coming up, the Bank of England is expected to keep its Bank Rate on hold at 4.5%, so volatility may arise from a surprise vote split or tone of messaging.
CHF 8-month lows versus euro. The big news from Switzerland of late is that it has been put on a list of countries with “unfair trade practices” by the US due to its positive balance of trade in goods. The growth forecasts for the Swiss economy have since been revised downwards by some economists from 1.4% to 1.2% for 2025. Though this hasn’t directly hit the franc in a negative way, it highlights how no country is immune to Trump’s tariff policies, even Switzerland as one of the most open and fair-trading nations in the world. USD/CHF has stabilised at 0.88 after the previous week’s 3% drop. EUR/CHF on the other hand, hit a fresh 8-month high, breaking above key moving averages in a sign of a bullish trend reversal. Next week, the Swiss National Bank is expected to cut interest rates from 0.5% to 0.25%, which might further dampen demand for the lower yielding swissy. However, downside risk may be limited given its haven appeal amidst heightened geopolitical and trade policy uncertainty.
CNYNegative outlook persists amid mixed trade data.China’s exports grew 2.3% y/y in January-February while imports contracted 8.4% y/y, creating a record trade surplus of nearly $171bn. The import decline signals persistently weak domestic demand despite government stimulus efforts. USD/CNH maintains a negative short-term outlook after rejection at the Ichimoku Cloud. Price action continues below the Cloud despite easing downward momentum. Resistance sits at 7.3039 with support at 7.2800 and downside potential toward 7.1475. The pair’s recent price action suggests sellers remain in control with rallies likely to be sold. Technically, the downtrend remains intact as long as price stays below the Cloud resistance. Key catalysts ahead include Chinese economic data releases on industrial production, retail sales, and the loan prime rate.
JPY Consolidation phase as Japan monitors inflation transition. Japan remains cautious about declaring deflation’s end, noting a transition from import-driven to wage-driven inflation. The economy shows signs of supply constraints rather than demand weakness. USD/JPY, now near six-month lows is consolidating after finding support in the 146.95-148.86 zone, with positive momentum divergence suggesting a potential rebound. The pair appears set to establish a trading range with key resistance at 151.30-152.27. Technical indicators point to oversold conditions, supporting the case for near-term stabilization. The recent decline’s decelerating momentum reinforces this outlook. The chart shows inverse correlation between Nasdaq and USD/JPY as the yen is typically a vehicle for global carry trade. Stronger Yen may contribute to the recent slowdown in AI-driven tech rally. The BoJ rate decision will be crucial for determining whether the current support holds or breaks.
CADA tariff-driven rate cut by the BoC. The Bank of Canada’s rate cut decision was largely anticipated by the markets. A tariff-driven 25 bps cut had been expected, as the central bank highlighted concerns about an impending crisis with the implementation of steel and aluminum tariffs, along with countermeasures by the Canadian government, this week. A brief spat between President Trump and Ontario Premier Doug Ford introduced some volatility to the USD/CAD. Nevertheless, for most of the week, the Loonie traded within a narrow range despite the barrage of news and the prevailing risk-averse sentiment in the markets.
The USD/CAD posted a high of 1.4521 this week and a low of 1.434, marked by significant intraday swings that revealed strong resistance above 1.45, with no indication of easing below 1.43. The Loonie remains above the 20-, 40-, and 60-day SMAs, while implied volatility has dropped considerably. April 2nd will be a pivotal date to evaluate the broader trajectory of U.S. trade policy. President Trump’s advisors have differentiated between tactical tariffs, employed as negotiation tools to secure specific concessions, and structural tariffs, aimed at reshaping U.S. trade policy in the long term.
AUD Business sentiment retreats as base pattern forms. Australian business confidence turned negative in February, dropping 6 points to -1 amid persistent cost pressures. Purchase costs accelerated to 1.5% q/q while profitability remained in negative territory. AUD/USD shows signs of forming a medium-term base but needs to clear the 0.64 resistance to confirm this outlook. Support lies at the 50-day moving average (0.6305) and the 0.6157-0.6211 Fibonacci zone. Price action indicates potential upside if these support levels hold. The pair remains range-bound with an upward bias, showing resilience despite the softer domestic data. The next key resistance is at its 200-day moving average (0.6452). Watch for upcoming employment data which could provide the catalyst needed to challenge the critical 0.64 resistance level.
MXN Avoiding retaliatory measures. Mexico’s peso strengthened this week, outperforming most other emerging market currencies. Commerce Secretary Howard Lutnick commended Mexico for not engaging in retaliatory tariff hikes against the U.S. On Wednesday, Mexican President Claudia Sheinbaum delayed any response to U.S. tariffs on steel and aluminum imports, opting to continue negotiations with the Trump administration. Lutnick also praised the UK and Mexico for avoiding tit-for-tat tariff escalations, contrasting them with other trading partners. He cautioned that countries provoking President Trump with retaliatory measures risk facing severe consequences. Mexican Peso has gained 3.5% versus the USD year to date, eyeing the 20-level support, as net short positioning unwinds against the Peso.
*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 recent performance of North American markets underscores mounting concerns about a U.S. economic slowdown—not a recession—in 2025. Polymarket places the likelihood of a recession at 38%, and while banks and investment managers avoid the “R-word,” they’ve already cut Q1 GDP estimates. Despite this, corporate profits and macro data reveal no definitive signs of a sharp slowdown. Market sentiment, however, reflects growing fears of higher inflation and slower growth, driven by the impact of tariffs and fiscal austerity. Surveys show that the threat of tariffs alone has weakened business investment prospects, while households worry about rising prices. Adding to these concerns, statements from Trump & Co have fueled unease on both Wall Street and Main Street.
Last week, when asked about the possibility of a recession this year, Trump described the U.S. economy as in a “period of transition”. On pausing tariffs on certain Canadian and Mexican products for a month, he dismissed any link to the stock market, emphasizing long-term U.S. strength. During his first term, Trump often highlighted equity market performance, which had created the so-called “Trump put,” where investors believed he would avoid policies triggering selloffs. However, his latest remarks suggest a shift to interest rates as his key economic barometer, noting “a big, beautiful drop” in rates. Notably, the S&P 500 experienced three Monday drops of over 1% in the first two months of his second term, compared to none in the first 836 days of his first term.
Amid this elevated equity market volatility, and overall risk-off sentiment, how was the CAD performed? Surprisingly, Loonie’s implied volatility remains among the lowest within G10 currencies. The Loonie has traded within a narrow range, with 1.43 as strong short-term support and resistance near 1.445. Concrete evidence of a significant U.S. economic slowdown, along with data showing tariffs directly impacting consumer prices, could trigger not the “Trump put,” but the “Fed put.” This might become the key catalyst to push the Canadian dollar out of its current range, especially as trade tensions escalate.
Today’s University of Michigan sentiment survey in the U.S. is expected to confirm the ongoing trend of participants expressing concerns about the pass-through of tariff costs to consumers.
Equities enter correction territory
Boris Kovacevic – Global Macro Strategist
Investors continue to display a cautious stance amid tariff uncertainty and macro ambiguity. It isn’t surprising to see that the market rout resumed on Thursday, sending the S&P 500 into correction territory as equities continued their three-week slide. The equity index is now down 10% from its February peak, equating to around $5 trillion of value lost. The dollar was bid but not enough to reverse the downtrend the currency has entered.
Despite a softer US inflation print earlier in the week, escalating trade tensions weighed heavily on sentiment. President Trump announced a potential 200% tariff on European wine, champagne, and spirits, doubling down on trade tensions just a day after vowing to keep steel and aluminum duties in place.
On the macro front, the data added to the uncertainty. US producer prices stagnated in February. Jobless claims came in at 220K, largely in line with expectations, but concerns over slowing wage growth and consumer spending are creeping into the broader outlook. Market pricing now suggests the Federal Reserve will stay put until June, though persistent inflation and deteriorating sentiment are complicating the policy path. Next week’s Fed decision and economic projections will be crucial, as investors look for clarity on how officials will balance stubborn inflation with weakening economic momentum.
The US dollar remains caught between trade-related volatility, Fed repricing, and shifting risk sentiment. While the Trump administration’s aggressive stance on tariffs could provide short-term safe-haven support, investors are increasingly focusing on the longer-term economic damage. If trade uncertainty continues to weigh on equities and growth, the dollar’s safe-haven bid may not be enough to offset structural headwinds. With Trump’s tariff deadline fast approaching and recession risks climbing, next week’s Fed guidance could be the deciding factor in whether the dollar extends its recent slide or stages a comeback.
Euro outlook remains complex
Boris Kovacevic – Global Macro Strategist
The euro edged lower from its five-month high, trading near $1.0850, as investors reassess the broader economic and geopolitical landscape. While the currency remains supported by Europe’s fiscal reset and Germany’s impending debt expansion, fresh uncertainty surrounding trade and energy policy has added a layer of complexity to the outlook. The euro’s recent strength has been driven by expectations of increased government spending, particularly in Germany, but with US tariff threats looming and risk sentiment shifting, markets are now more cautious.
Adding to the eurozone’s economic equation, natural gas futures plunged after Russian President Vladimir Putin floated the possibility of renewed energy cooperation with Washington. Speaking in Moscow, Putin suggested that if the US and Russia reached a deal on energy, pipeline gas to Europe could be restored. This speculation comes as US President Donald Trump intensifies his efforts to broker an end to the war in Ukraine, leading some to wonder whether energy trade restrictions might be loosened as part of a broader peace framework. This means that, in addition to falling wages, inflation expectations could fall faster than anticipated, potentially complicating the European Central Bank’s (ECB) already delicate monetary policy outlook.
Looking ahead, the euro’s trajectory will depend on how markets digest these competing forces. The currency has benefited from Germany’s major fiscal shift and the ECB’s measured approach to rate cuts, but Trump’s trade policies and ongoing geopolitical shifts could introduce fresh volatility. With tariff threats still unresolved and economic risks lingering, EUR/USD remains stuck between competing narratives—fiscal optimism on one side, external uncertainty on the other.
UK economic concerns mount after GDP miss
George Vessey – Lead FX & Macro Strategist
The pound is on the backfoot this morning after data showed the UK economy shrank 0.1% in January on a monthly basis, versus an expected expansion of 0.1% and markedly lower than December’s 0.4% print. However, the 3-month rolling average ticked up from 0.1% to 0.2%. It’s still a blow to the UK’s Labour party that has pledged to bring an end to over a decade of stagnation.
Despite the slowing UK economy, the Bank of England is expected to keep its Bank Rate on hold at 4.5% next week due to growing inflationary risks. The cut-hold tempo by the BoE has become well established but weak supply dynamics mean the growth-inflation trade-off has worsened so much that the BoE may well decide to defer a rate reduction in May too. This has already sent yields in the UK relative to those in the US higher in recent weeks, underpinning GBP/USD. Despite trading softer this morning, sterling is primed for another week of gains versus the dollar but is yet to change hands with the key $1.30 handle. Meanwhile, after its worst week in two years last week, GBP/EUR has modestly recovered back into the mid-€1.19 region due to the escalating trade war between the US and EU.
There’s also the threat of political headwinds from Germany weighing on the euro amidst the upcoming vote on fiscal reforms next Tuesday. But overcoming them will ensure sustained upward bias for the euro, which could reinstate the downtrend in GBP/EUR. The pair is trading back above its 200-day moving average this morning, but as we’ve warned – the €1.1740 level looks like the next key downside target if euros strength resumes next week.
*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.
Investors continue to display a cautious stance amid tariff uncertainty and macro ambiguity. It isn’t surprising to see that the market rout resumed on Thursday, sending the S&P 500 into correction territory as equities continued their three-week slide. The equity index is now down 10% from its February peak, equating to around $5 trillion of value lost. The dollar was bid but not enough to reverse the downtrend the currency has entered.
Despite a softer US inflation print earlier in the week, escalating trade tensions weighed heavily on sentiment. President Trump announced a potential 200% tariff on European wine, champagne, and spirits, doubling down on trade tensions just a day after vowing to keep steel and aluminum duties in place.
On the macro front, the data added to the uncertainty. US producer prices stagnated in February. Jobless claims came in at 220K, largely in line with expectations, but concerns over slowing wage growth and consumer spending are creeping into the broader outlook. Market pricing now suggests the Federal Reserve will stay put until June, though persistent inflation and deteriorating sentiment are complicating the policy path. Next week’s Fed decision and economic projections will be crucial, as investors look for clarity on how officials will balance stubborn inflation with weakening economic momentum.
The US dollar remains caught between trade-related volatility, Fed repricing, and shifting risk sentiment. While the Trump administration’s aggressive stance on tariffs could provide short-term safe-haven support, investors are increasingly focusing on the longer-term economic damage. If trade uncertainty continues to weigh on equities and growth, the dollar’s safe-haven bid may not be enough to offset structural headwinds. With Trump’s tariff deadline fast approaching and recession risks climbing, next week’s Fed guidance could be the deciding factor in whether the dollar extends its recent slide or stages a comeback.
Euro outlook remains complex
Boris Kovacevic – Global Macro Strategist
The euro edged lower from its five-month high, trading near $1.0850, as investors reassess the broader economic and geopolitical landscape. While the currency remains supported by Europe’s fiscal reset and Germany’s impending debt expansion, fresh uncertainty surrounding trade and energy policy has added a layer of complexity to the outlook. The euro’s recent strength has been driven by expectations of increased government spending, particularly in Germany, but with US tariff threats looming and risk sentiment shifting, markets are now more cautious.
Adding to the eurozone’s economic equation, natural gas futures plunged after Russian President Vladimir Putin floated the possibility of renewed energy cooperation with Washington. Speaking in Moscow, Putin suggested that if the US and Russia reached a deal on energy, pipeline gas to Europe could be restored. This speculation comes as US President Donald Trump intensifies his efforts to broker an end to the war in Ukraine, leading some to wonder whether energy trade restrictions might be loosened as part of a broader peace framework. This means that, in addition to falling wages, inflation expectations could fall faster than anticipated, potentially complicating the European Central Bank’s (ECB) already delicate monetary policy outlook.
Looking ahead, the euro’s trajectory will depend on how markets digest these competing forces. The currency has benefited from Germany’s major fiscal shift and the ECB’s measured approach to rate cuts, but Trump’s trade policies and ongoing geopolitical shifts could introduce fresh volatility. With tariff threats still unresolved and economic risks lingering, EUR/USD remains stuck between competing narratives—fiscal optimism on one side, external uncertainty on the other.
UK economic concerns mount after GDP miss
George Vessey – Lead FX & Macro Strategist
The pound is on the backfoot this morning after data showed the UK economy shrank 0.1% in January on a monthly basis, versus an expected expansion of 0.1% and markedly lower than December’s 0.4% print. However, the 3-month rolling average ticked up from 0.1% to 0.2%. It’s still a blow to the UK’s Labour party that has pledged to bring an end to over a decade of stagnation.
Despite the slowing UK economy, the Bank of England is expected to keep its Bank Rate on hold at 4.5% next week due to growing inflationary risks. The cut-hold tempo by the BoE has become well established but weak supply dynamics mean the growth-inflation trade-off has worsened so much that the BoE may well decide to defer a rate reduction in May too. This has already sent yields in the UK relative to those in the US higher in recent weeks, underpinning GBP/USD. Despite trading softer this morning, sterling is primed for another week of gains versus the dollar but is yet to change hands with the key $1.30 handle. Meanwhile, after its worst week in two years last week, GBP/EUR has modestly recovered back into the mid-€1.19 region due to the escalating trade war between the US and EU.
There’s also the threat of political headwinds from Germany weighing on the euro amidst the upcoming vote on fiscal reforms next Tuesday. But overcoming them will ensure sustained upward bias for the euro, which could reinstate the downtrend in GBP/EUR. The pair is trading back above its 200-day moving average this morning, but as we’ve warned – the €1.1740 level looks like the next key downside target if euros strength resumes next week.
*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 markets fall further into correction
The US dollar was higher for a second day overnight as markets continued to worry about the potential for a US slowdown and the impact of tariffs.
US President Donald Trump again warned on further new tariffs overnight saying he would consider a 200% mark-up on European champagne, wine and spirits in retaliation for an EU tariff on US whiskey.
The S&P 500 fell 1.3% and now joins the tech-focused Nasdaq in correction territory – considered a drop of 10% from recent highs. The Nasdaq, down 2.0% overnight, is now down 14% from recent highs.
In FX markets, the USD index extended its rebound from four-month lows.
The EUR/USD fell 0.3%, GBP/USD lost 0.1%, USD/JPY dropped 0.2%.
The AUD/USD and NZD/USD both fell 0.5% while USD/SGD climbed 0.2% and USD/CNH gained 0.1%.
US sentiment deteriorates to 16-month low
The University of Michigan Consumer Sentiment is released at 1.00am tonight (AEDT).
In March, the University of Michigan Consumer Sentiment preliminary print probably decreased to 62.5, the lowest level since November 2023.
In terms of USD, the Fed’s caution on rate cuts (“not in a hurry to ease”) highlights limited downside risks for the USD in the medium term.
Looking at Asia, USD/SGD remains at the low end of a 30-day trading range.
There is growing expectations for potential MAS policy easing in April.
Our baseline is for a slight reduction in the S$NEER appreciation slope to 0.5% in April.
The next key resistance levels are at the 50-day 1.3439 and 200-day EMA 1.3400, where SGD buyers may look to take advantage.
UK GDP weakness might weigh on British pound
Today, UK monthly GDP will be revealed at 6.00pm AEDT.
We anticipate decreased output in January following an unexpectedly positive GDP in December (up 0.4% month over month).
AUD/GBP is now near March 2020 lows, trading in a 30-day tight range between 0.49-0.51.
Similarly for NZD/GBP at 0.44-0.46.
However, GBP/SGD is at the top at its 30-day trading range – an opportunity for GBP sellers.
USD higher 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.
Wednesday brought its fair share of key updates. The White House rolled out 25% tariffs on steel and aluminum, effective immediately, with zero exemptions. The European Union hit back with tariffs on a range of goods—steel, aluminum, textiles, home appliances, agricultural products, and even iconic American staples like motorcycles, bourbon, peanut butter, and jeans, echoing the trade spats of Trump 45’. On the data front, U.S. CPI cooled slightly to 2.8% YoY. The Bank of Canada (BoC) responded to economic uncertainties with a rate cut to 2.75% as widely expected. And right after the decision, Canada’s Finance Minister announced retaliatory tariffs on U.S. steel, aluminum, and items like computers, sports equipment, and cast-iron products. The Loonie reacted on the hectic day with a 120-pip intraday swing, with a high of 1.448 and a subsequent move down to 1.436 during North American trading hours.
Three key takeaways from the day’s events:
BoC’s Policy Stance: the BoC reiterated that monetary policy alone cannot shield the economy from the fallout of a trade war. However, it remains committed to preventing trade-induced inflation from becoming entrenched. Governor Macklem emphasized a forward-looking approach to navigate the uncertainty around inflation: weaker economic growth may alleviate inflation, but trade uncertainties, a depreciating Loonie, and counter-tariffs could drive it higher. The central bank faces a challenging task ahead, with target rate likely to remain steady at its next meeting on April 16th.
Consumer and Business Sentiments: findings from the BoC’s latest survey reveal that mere threats of trade disruptions have prompted Canadian businesses and households to respond preemptively. Many are saving more, cutting discretionary spending, delaying long-term investments. Also, half of businesses surveyed plan to increase their prices if tariffs are imposed on their inputs or products and inflation expectations among both consumers and businesses are coming up higher.
U.S. Treasuries’ Response: following the U.S. CPI report, yields on 10-year Treasuries rose, but why? This reaction stems from skepticism about whether the weakness in airfares, which brought CPI lower, will influence the Fed’s preferred PCE index. Furthermore, recent upticks in core goods inflation, a key driver of disinflation in 2023, signal that tariffs could intensify price pressures here first.
Today markets will be focused on US PPI, expected to drop from 3.5% to 3.3% YoY as well as the discussion within the Senate to approve a government funding bill to avoid a shutdown. In Canada, January’s reading on Building permits will be of relevance.
Inflation data overshadowed by tariff threat
George Vessey – Lead FX & Macro Strategist
There was a brief reprieve in risk sentiment yesterday following some good news on US inflation. But the rally in stocks and bonds fizzled out as the details of the consumer price inflation prints were less rosy, whilst global trade war fears escalated. The US dollar index snapped a 7-day decline but remains close to pre-election levels. Meanwhile, US producer price inflation data today might muddy the disinflation narrative, which could make life harder for the Federal Reserve (Fed).
Canada and the EU are responding to the blanket US tariffs on steel and aluminium in a sign that the global trade war is ratcheting up. The 3.7% decline in the dollar so far this month, coupled with the falls in US stocks and their under-performance relative to other countries, reflect a remarkable turnaround in investors’ views about the economic outlook for America and Europe. However, a surprisingly cool set of February US consumer price inflation prints m/m pulled the annual rate of headline inflation down to 2.8% from 3% while core inflation dips to 3.1% from 3.3%. This halted the stock selloff that had put the S&P 500 on the verge of a correction. The details are less rosy though with a substantial 4% m/m drop in air fares (highly volatile) the main factor driving the softer inflation readings. Moreover, there’s brewing anecdotal evidence of firms pre-emptively raising prices ahead of potential tariffs with this week’s NFIB survey reporting a 10 point jump in the proportion of companies raising prices. The risk here is that core inflation starts to reverse and move higher again in coming months.
Tariff fears are already seeing companies nudging prices higher and risk higher inflation readings over the summer, which would further complicate the Fed’s policy decision making amidst growing recession fears. In addition, key components from the producer price index, published today, that enter into the Fed’s preferred inflation measure, are expected to have accelerated from January. This will make it harder for the Fed to cut despite slowing US economic activity. Thus, the outlook for equities and broader risk appetite remains grim.
Will Trump stop the euro rally?
Boris Kovacevic – Global Macro Strategist
The euro’s rally lost some momentum yesterday, slipping below the $1.09 mark. While broader risk sentiment improved after softer US inflation data, European markets faced renewed trade tensions and political uncertainty. President Trump made it clear that he intends to retaliate against the EU’s countermeasures on his 25% steel and aluminum tariffs. This tit-for-tat will raise the already elevated tensions between both regions and could limit the upside on the euro for now.
Meanwhile, German bond markets continue to send a strong signal. The 10-year Bund yield surged past 2.9%, reaching its highest level in nearly 13 years as negotiations over expanded government borrowing intensified. The Greens remain hesitant to fully back the fiscal expansion proposed by the CDU/CSU-led coalition, but alternative proposals suggest a compromise could be within reach. If secured, this could pave the way for a significant boost to Germany’s defense and infrastructure spending—an economic shift that has already started to reshape investor sentiment toward the Eurozone.
For now, EUR/USD remains supported by the broader shift in sentiment away from the dollar, but trade risks are becoming harder to ignore. If Trump retaliates further, it could weigh on European equities and the euro in the short term. However, if a German fiscal deal comes through, it may provide another boost for European assets, especially as US growth concerns mount. Investors will closely watch any new developments on both fronts in the coming days.
Within a whisker of $1.30
George Vessey – Lead FX & Macro Strategist
Sterling climbed to a fresh 3-month peak of $1.2988 on Wednesday, within a whisker of the key $1.30 level, which it has been below for 60% of the time over the past five years. GBP/USD is up 3% month-to-date, and almost two cents above its 5-year average of $1.28, but is still trading within the overbought zone indicated by the 14-day relative strength index. GBP/EUR also snapped a run of six consecutive daily losses as focus turned to EU-US trade war risks following the EU’s retaliation to US tariffs.
While downside risks for the euro and Eurozone economy have diminished due to hopes of huge fiscal reforms, the tariff theme remains a significant near-term risk for the common currency, which appears to be limiting the euro’s gains against the pound. We’re still keeping a close eye on the 50-week moving average, currently located at €1.1888. If GBP/EUR closes the week below this level, we think a slide towards €1.1740 is feasible over the coming month. Otherwise, the pair might stay bound to a tight range given real rate differentials suggests €1.19 is fair value. We think there may be more scope of the pound to stay resilient against the dollar though as currency traders parse where relative interest rates are likely headed over the next six months. Both the Fed and Bank of England (BoE) meet next week, and whilst there’s little chance that either central bank will cut, markets are pricing in around three cuts by the Fed later this year versus an expectation of just two by the BoE.
Indeed, with UK inflation having bounced back and inflation breakeven rates suggesting that increases in retail prices over the next two years are likely to hover close to 4%, the BoE may well decide to defer its next rate reduction. This has already sent nominal yields in the UK relative to those in the US surging in recent weeks, underpinning GBP/USD. As mentioned above though, the pound is in overbought territory so is vulnerable to traders taking some money off the table in the very short term.
*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.
There was a brief reprieve in risk sentiment yesterday following some good news on US inflation. But the rally in stocks and bonds fizzled out as the details of the consumer price inflation prints were less rosy, whilst global trade war fears escalated. The US dollar index snapped a 7-day decline but remains close to pre-election levels. Meanwhile, US producer price inflation data today might muddy the disinflation narrative, which could make life harder for the Federal Reserve (Fed).
Canada and the EU are responding to the blanket US tariffs on steel and aluminium in a sign that the global trade war is ratcheting up. The 3.7% decline in the dollar so far this month, coupled with the falls in US stocks and their under-performance relative to other countries, reflect a remarkable turnaround in investors’ views about the economic outlook for America and Europe. However, a surprisingly cool set of February US consumer price inflation prints m/m pulled the annual rate of headline inflation down to 2.8% from 3% while core inflation dips to 3.1% from 3.3%. This halted the stock selloff that had put the S&P 500 on the verge of a correction. The details are less rosy though with a substantial 4% m/m drop in air fares (highly volatile) the main factor driving the softer inflation readings. Moreover, there’s brewing anecdotal evidence of firms pre-emptively raising prices ahead of potential tariffs with this week’s NFIB survey reporting a 10 point jump in the proportion of companies raising prices. The risk here is that core inflation starts to reverse and move higher again in coming months.
Tariff fears are already seeing companies nudging prices higher and risk higher inflation readings over the summer, which would further complicate the Fed’s policy decision making amidst growing recession fears. In addition, key components from the producer price index, published today, that enter into the Fed’s preferred inflation measure, are expected to have accelerated from January. This will make it harder for the Fed to cut despite slowing US economic activity. Thus, the outlook for equities and broader risk appetite remains grim.
Will Trump stop the euro rally?
Boris Kovacevic – Global Macro Strategist
The euro’s rally lost some momentum yesterday, slipping below the $1.09 mark. While broader risk sentiment improved after softer US inflation data, European markets faced renewed trade tensions and political uncertainty. President Trump made it clear that he intends to retaliate against the EU’s countermeasures on his 25% steel and aluminum tariffs. This tit-for-tat will raise the already elevated tensions between both regions and could limit the upside on the euro for now.
Meanwhile, German bond markets continue to send a strong signal. The 10-year Bund yield surged past 2.9%, reaching its highest level in nearly 13 years as negotiations over expanded government borrowing intensified. The Greens remain hesitant to fully back the fiscal expansion proposed by the CDU/CSU-led coalition, but alternative proposals suggest a compromise could be within reach. If secured, this could pave the way for a significant boost to Germany’s defense and infrastructure spending—an economic shift that has already started to reshape investor sentiment toward the Eurozone.
For now, EUR/USD remains supported by the broader shift in sentiment away from the dollar, but trade risks are becoming harder to ignore. If Trump retaliates further, it could weigh on European equities and the euro in the short term. However, if a German fiscal deal comes through, it may provide another boost for European assets, especially as US growth concerns mount. Investors will closely watch any new developments on both fronts in the coming days.
Within a whisker of $1.30
George Vessey – Lead FX & Macro Strategist
Sterling climbed to a fresh 3-month peak of $1.2988 on Wednesday, within a whisker of the key $1.30 level, which it has been below for 60% of the time over the past five years. GBP/USD is up 3% month-to-date, and almost two cents above its 5-year average of $1.28, but is still trading within the overbought zone indicated by the 14-day relative strength index. GBP/EUR also snapped a run of six consecutive daily losses as focus turned to EU-US trade war risks following the EU’s retaliation to US tariffs.
While downside risks for the euro and Eurozone economy have diminished due to hopes of huge fiscal reforms, the tariff theme remains a significant near-term risk for the common currency, which appears to be limiting the euro’s gains against the pound. We’re still keeping a close eye on the 50-week moving average, currently located at €1.1888. If GBP/EUR closes the week below this level, we think a slide towards €1.1740 is feasible over the coming month. Otherwise, the pair might stay bound to a tight range given real rate differentials suggests €1.19 is fair value. We think there may be more scope of the pound to stay resilient against the dollar though as currency traders parse where relative interest rates are likely headed over the next six months. Both the Fed and Bank of England (BoE) meet next week, and whilst there’s little chance that either central bank will cut, markets are pricing in around three cuts by the Fed later this year versus an expectation of just two by the BoE.
Indeed, with UK inflation having bounced back and inflation breakeven rates suggesting that increases in retail prices over the next two years are likely to hover close to 4%, the BoE may well decide to defer its next rate reduction. This has already sent nominal yields in the UK relative to those in the US surging in recent weeks, underpinning GBP/USD. As mentioned above though, the pound is in overbought territory so is vulnerable to traders taking some money off the table in the very short term.
*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.
