United States
Investors appear to be finding comfort in a signal from senior U.S. officials that has somewhat toned down the possibility of reciprocal and sectoral tariffs, initially threatened to start on April 2nd. Despite the administration being two months old, conflicting signals and uncertainties persist. The U.S. dollar has softened against major G10 currencies, with the Japanese yen being a notable exception. Although the U.S. 10-year Treasury yield remains firm at around 4.28%, its highest in a week, emerging market currencies have shown mixed performance; notably, the Indian rupee gained 0.45% while the Turkish lira declined by 0.5%. Furthermore, U.S. equities are showing marginal gains, with futures up over 1%.
The Dollar Index recently closed at its highest in two-and-a-half weeks, surpassing the 104.00 level, hinting at a potential bottom. However, further momentum is needed to confirm this trend. The preliminary March PMI is awaited, having shown a decline in the previous two months, with February’s composite at 51.6 marking the lowest since late 2023. Despite this, Fed Chair Powell has downplayed soft survey data, instead highlighting real sector reports which have fared better. Meanwhile, quarter-end approaches and the April 2nd tariff threats loom, despite reports suggesting these may not materialize.
Eurozone
The euro briefly dipped below $1.08 recently, marking a decline for the first time in two weeks. The dip was not significant enough to trigger widespread stop-losses and quickly recovered to $1.0830. Currently, it is trading above $1.08, eyeing resistance around $1.0860. Economic recovery appears to be gaining traction, evident from a series of fiscal efforts. Although the composite PMI hasn’t declined since November, standing at 50.2 in early 2024, an increase to 50.4 in March was noted. Despite this optimism, the manufacturing sector remains sluggish with a PMI at 48.7, its slowest contraction rate since August 2022.
In terms of individual Eurozone nations, Germany’s composite PMI has remained above 50 through the first quarter, indicating growth, whereas France has experienced a downturn with its composite PMI ending last year at 47.5 and dropping to its lowest since late 2023 in February at 45.1, before rebounding to 47.0 in March.
United Kingdom
Sterling saw a decline, breaking below $1.29 for the first time since March 11. Despite a minor dip below the pre-weekend low of $1.2890, it rebounded to nearly $1.2960 today. The decline before the weekend ended a two-week rally and is only the second weekly loss since late January. On the brighter side, the UK’s flash composite PMI for March rose to 52.0 from 50.5, marking the highest level since late Q3 2024. Key economic data releases this week, including February’s CPI and retail sales, may lead to more pronounced market movements.
Attention also turns to fiscal policy, emphasized by the Office for Budget Responsibility and the forthcoming Spring Statement.
China
The dollar seems to have established a floor around CNH7.2200, settling above the 20-day moving average (~CNH7.2530) ahead of the recent weekend. It advanced to CNH7.2650 today, surpassing a significant retracement level. On a weekly basis, the People’s Bank of China (PBOC) has alternated between higher and lower dollar fixings, maintaining a relatively stable reference rate, which suggests limited interference. Recently, the PBOC made a substantial liquidity withdrawal within the market, amounting to CNY346 billion via open market operations. This is amidst indications from a U.S. Senator, following a meeting with Chinese officials, that trade negotiations will only resume after the flow of fentanyl precursors ceases.
Japan
Last week, the dollar strengthened against the yen, marking the first consecutive weekly gain this year. Although it peaked mid-week around JPY150.15, it hasn’t closed above JPY150 this month. Momentum indicators appear favorable, suggesting potential movement above JPY150 towards JPY151.65-80. Japanese markets typically disregard PMI data, yet the March composite PMI fell notably to 48.5 from its previous decline five months ago, marking its lowest since February 2022. Meanwhile, indicators such as industrial production and household spending remain weak.
Canada
The U.S. dollar has experienced a three-week decline against the Canadian dollar, marking its longest losing streak since last August, although the decline amounted to less than 0.85%. It has averaged around CAD1.4375 this month, recently settling around CAD1.4350. Prime Minister Carney has called for a snap election on April 28, with the recently dissolved parliament. Recent polls suggest a lead for the Liberal Party over the Conservatives. Upcoming U.S. tariff announcements and sparse Canadian economic data make significant Canadian dollar gains unlikely. The only major economic report expected this week is the GDP estimate for January, with a nominal 0.1% expansion anticipated.
Australia
The Australian dollar declined for four consecutive sessions, reaching slightly below $0.6260 before the weekend, its lowest since March 5. It has shown a better bid today but remains below last Friday’s high of slightly over $0.6300. Australia’s preliminary composite PMI has risen to 51.3 from 50.6 in February, unaffected by March’s cyclone. Weak February employment data, showing nearly 36k full-time positions lost, predate the cyclone’s impact. Consequently, market expectations for a central bank rate cut by May have increased slightly. The year’s end rate projection has decreased from 3.65% to 3.40%.
Mexico
Following a 5.5% drop since the March 4 high near MXN21.00, the dollar has regained some strength. It rose around 1.5% last week, reaching MXN20.2755, its highest in seven days. With momentum indicators pointing upward, a move above MXN20.29 is possible, potentially targeting MXN20.42. Key events for Mexico this week include the publication of the March CPI for the first half of the month and the IGEA economic activity index. However, the highlight is the central bank’s anticipated second consecutive 50 basis point rate cut Thursday, supported by softer inflation and economic activity data. This rate cut might provide some cushioning against the anticipated U.S. economic slowdown and prospective tariff threats.
