# United States
The architects of the new US foreign economic policy anticipated that the appreciation of the dollar would offset some costs associated with US tariffs, expecting exporters to lower their prices. Contrary to expectations, the dollar has predominantly depreciated against major currencies. Recent data show the dollar hitting new annual lows against currencies such as the Chinese yuan, Mexican peso, euro, British pound, Japanese yen, Swedish krona, and Norwegian krone.
China responded decisively to Walmart’s attempts at demanding deeper price concessions from Chinese producers to avoid losing market share in the US. The probability of a partial shutdown of the federal US government was minimized, yet it may have set the stage for a larger debate later. Though winter storms in January might exaggerate an economic slowdown in the short term, the medium-term outlook remains laden with risks. Uncertainty regarding tariffs, government layoffs, and cooling immigration could stall corporate investments, erode consumer confidence, and dampen discretionary spending. Despite this, US real sector data (including retail sales, industrial output, and housing starts) suggest expanding activity in February.
The Federal Reserve is expected to reiterate Chair Powell’s recent comments about the economy’s resilience, allowing it to adopt a cautious approach until the economic landscape becomes clearer. The upcoming FOMC meeting will likely maintain current rates, offering updates on economic projections.
# Eurozone
The fiscal response to the US’s shifting policies is still developing, although the direction of travel is becoming clearer. A German agreement may be on the verge of approval, and is likely to be voted on under the previous parliamentary setup. European interest rates are narrowing relative to the US, bolstering the euro. European equities are outperforming those in the US, following a record purchase of US shares by Europeans in 2024. As exchange rates and asset prices see dramatic fluctuations, new portfolio allocations are expected.
Despite what seems like stale economic data, fiscal developments offer a more dynamic perspective. Highlights include the trade and current account balances for January, and Germany’s ZEW survey. While Germany’s economic assessment declined in late 2024, optimism is rising in early 2025. Meanwhile, the Swiss National Bank is contemplating rate adjustments in response to disinflationary trends.
# United Kingdom
Sterling benefits from the broader decline in the US dollar, with notable correlations with the dollar index changes. Although economic growth signs are elusive, the UK’s GDP shrank unexpectedly by 0.1% in January. The labor market report on March 20 stands out, indicating the Bank of England may be reluctant to cut rates consecutively. Current market conditions suggest there may be upcoming rate cuts over the year.
# China
The yuan’s value is closely managed, and Chinese authorities seek to stabilize it through various mechanisms. Recent figures on inflation shift attention to real sector data. Though US tariffs affect export dynamics, industrial output shows slower growth rates compared to last year, with retail sales also cooling. Stimulus initiatives may surface on Monday to stimulate domestic demand, as China stays firm against using currency depreciation to counteract tariffs.
# Japan
The yen’s exchange rate has been more closely tied to changes in the US 10-year Treasury yield than differentials with Japan. Market analysts predict the Bank of Japan may raise rates mid-year, contingent on economic performance. Recent CPI data should guide the BOJ’s forthcoming meeting discussions.
# Canada
The Bank of Canada, reacting to US tariff implications, has cut rates amidst a political shift with a new prime minister. Fiscal initiatives to support affected industries were surprising yet feasible given Canada’s fiscal position. Economic indicators suggest a slowing Canadian economy, although rates are likely to remain stable in the near term.
# Australia
A notable correlation has emerged between the Australian and Canadian dollar exchange rates. Employment data for February will be a focal point for assessing economic stability, albeit there is little expectation of interest rate changes at the next central bank meeting. The Australian dollar has shown signs of consolidation, potentially benefiting from more positive Chinese market conditions.
# Mexico
The Mexican peso has shown a strong performance against the dollar this year, avoiding the intense scrutiny facing Canada’s trade relations with the US. High interest rates in Mexico make speculative activities costly, and despite risks from US tariffs, Mexico benefits from relative economic stability. Economic reports, including the CPI and trade figures, will provide key insights before the central bank’s meeting. Recent developments suggest a more resilient positioning against potential fiscal headwinds.
