Written by the Market Insights Team
Stocks dip, Loonie stays unfazed
Kevin Ford – FX and Macro Strategist
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.
Mexican peso thrives among emerging currencies
Table: 7-day currency trends and trading ranges
Key global risk events
Calendar: March 10-14
All times are in ET
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.