United States
The recently postponed US tariffs on Canada and Mexico have now been implemented, with China experiencing a second 10% tariff increase in two consecutive months. While the US dollar is mixed, the Swiss franc and Japanese yen are leading among G10 currencies, with gains of approximately 0.45% to 0.60% by the late European morning. The Canadian dollar is also performing well, posting a 0.35% increase. Canada and China have responded with what are seen as mild retaliatory measures, while Mexico is anticipated to announce its actions later today. Stock markets are not favorably viewing the tariffs, as Asia Pacific markets have largely declined and Europe’s Stoxx 600 is down over 1%, marking the largest drop this year if sustained. US index futures are also trending downward. Meanwhile, a disappointing 10-year bond auction in Japan has pushed the 10-year JGB yield up to nearly 1.41%. European benchmark 10-year yields have mostly decreased by 2-3 basis points, with the UK’s 10-year Gilt yield dropping five basis points to 4.50%. The US 10-year Treasury yield has inched up by one basis point to nearly 4.17%. Gold is experiencing a continued recovery, up about 0.75% today near $2915 after last week’s dip, while WTI crude has dropped below $68 to new three-month lows, despite OPEC+’s confirmation of a scheduled output increase next month. In currency markets, the Dollar Index has given up more than half of its recent gains, falling below chart support near 106.50, and testing the 106.00-10 area.
Eurozone
The euro’s position has stabilized somewhat after bouncing off its recent two-and-a-half-week low (~$1.0360) at the end of February and breaching $1.05 yesterday. Although it dipped slightly below $1.0470 today, it managed to stay just above $1.0525. In January and February, the euro peaked in the $1.0530-35 range. Economic momentum indicators suggest a potential shift, as changing perceptions about the US Federal Reserve’s policy trajectory have led to a reduction in the US two-year premium over Germany by over 25 basis points over recent weeks. Earlier today, Eurostat reported that the euro area’s unemployment rate held steady at a record low of 6.2% in January, consistent since last November.
United Kingdom
The British pound has rebounded from losses last Thursday and Friday, gaining more than a cent-and-a-third to reach a new high of almost $1.2725, the highest since mid-December. The pound is now slightly firmer, nearing the 50% retracement level of the decline (~$1.3435) from last September to the mid-January low (~$1.2100), found near $1.2765. The 200-day moving average is closer to $1.2785. This week, the UK economic calendar is relatively light, with key items including the final PMI reading and new car registrations.
China
The dollar had firmed against the Chinese yuan recently, reaching its highest level since February 13 near CNH7.3065, closing on that high. However, the dollar has generally weakened today, despite new tariff announcements, and is trading near a three-day low against the offshore yuan, near CNH7.2700. A breakthrough below this level could target CNH7.25. The PBOC’s reference rate for the dollar is set at CNY7.1739. Meanwhile, China’s National People’s Congress session commences tomorrow, facing a complex landscape with the new US administration potentially causing worry among Chinese officials, while also witnessing increased tensions between the US and its traditional allies.
Japan
The US dollar recorded session highs yesterday in early North American trading near JPY151.30, just above the 20-day moving average, a level it has not settled above since mid-January, and ahead of resistance around JPY151.50. The dollar appears to be carving a rounded bottom, with momentum indicators turning higher, though a drop in US interest rates exerted downward pressure. The US 10-year yield decreased significantly from session highs, nudging the dollar back to the pre-weekend low above JPY149. Today, follow-through selling has pushed the dollar to retest last week’s lows near JPY148.60. Prime Minister Ishiba personally addressed accusations from President Trump that a weak yen was harming US economic interests. Unemployment remains unchanged at 2.5%, with the job-to-applicant ratio ticking up to 1.26 from 1.25.
Canada
The potential for a continued rally in the US dollar against its Canadian counterpart appears to be challenged. However, with US tariffs now imminent, the greenback recorded a bullish outside up day, trading on both sides of last Friday’s range and settling above its high. Recently, the greenback reached CAD1.4540, its highest point since February 3, when tariffs seemed imminent, though it held below about CAD1.4520 today. The US dollar found support during early European trading ahead of CAD1.4400. The Bank of Canada’s outlook may be more influenced by US tariffs than by high-frequency economic data. This week includes Canada’s PMI data, January trade figures, and February employment report. Ahead of the US tariff announcement, market expectations indicate a 77% chance of a rate cut at next week’s Bank of Canada meeting, up from about 50% at the end of the previous week, with about 75 basis points in additional cuts anticipated by 2025.
Australia
The Australian dollar reversed a six-day downward streak yesterday, rebounding more than 3.4% from its previous low. It surpassed the pre-weekend high, slightly below $0.6240, but remained below $0.6230 today, rebounding from earlier lows below $0.6190. Momentum indicators had turned lower last week, with the five-day moving average crossing below the 20-day moving average. While Australia’s Q4 current account deficit was slightly larger than expected at A$12.5 billion, the Q3 shortfall was revised downward. The current account deficit has been worsening gradually on a quarterly basis for three years but has only limited influence on currency movements. Retail sales increased by 0.3% in January following a 0.1% decrease in December. Minutes from the February central bank meeting did not offer new insights. Futures markets reflect a less than 20% chance of a rate cut at the April 1 RBA meeting, with an 85% expectancy for a rate cut in May, fully priced in by July. A national election must be called by May 17.
Mexico
Mexico’s economy contracted by 0.6% in Q4 2024, with a muted start to 2025. The looming US tariff threats exacerbate existing challenges. The peso appreciated approximately 1.3% in January and February, while returning about half of these gains yesterday. The dollar marked a bullish outside up day, trading on both sides of the previous day’s range, and closed above its high. The recent 0.6% decline was the most significant among emerging markets. Continued peso selling today lifted the dollar to MXN20.9335, the best since February 3. Initial support is now seen within MXN20.70-80. The central bank meets on March 27, and with inflation now within its 3% +/-1% target, it may consider another 50 basis point rate cut. Mexico’s February CPI, due later this week, is a focal point, as the dollar has oscillated between MXN20.00 and MXN21.00 since last November, apart from a brief rise on February 3 due to tariff concerns.
