The USD continues to face pressure, oil prices weaken, equity markets declined, and US yields fell as tariffs take effect. Currency market volatility persists following the US's imposition of tariffs on China, Canada, and Mexico. Both the Canadian dollar and Mexican peso have dropped to monthly lows, while the US dollar might be expected to strengthen; however, weak US economic data has weighed on the USD. European equities fell amid investor concern that the EU could be the next to face US tariffs. US futures point to a flat opening, while Chinese equities posted modest gains as china announced retaliatory tariffs, stopping short of a full-blown trade war. Following today’s US trade tariffs, investors will focus on President Trump’s address to Congress for hints of future US actions. Elsewhere, oil prices continue to weaken on demand concerns alongside OPEC’s increase in oil output. Bitcoin has dropped below $84k, declining 2% due to waning optimism for Trump’s crypto reserve plan. Today features a light economic calendar, so the focus will be on the US President’s address to Congress and the speeches by Fed officials Barkin and Williams to help provide direction to currency markets.
In the news. President Trump pauses all US military aid to Ukraine after clash with Zelenskiy. Trump confirms he will impose 25% tariffs on Mexico and Canada on Tuesday. TSMC unveils $100bn US chip investment. Europeans move towards seizing Euro 200bn of Russian assets. Russia says normalizing ties with US will require lifting sanctions on Moscow. China retaliates with additional tariffs of up to 15% on some US goods from March 10th. EU chief proposes plan to 'Urgently increase defence spending by mobilizing around $840 billion. Canada will retaliate with 25% tariffs on billions worth of US goods as Trump's tariff deadline passes. Doug Ford threatens to turn off power for billions of US homes on eve of trade war.
In currency markets. CAD rebounds after hitting a one month low of 1.4542 on Monday, while MXN remains under pressure testing 2022 lows against the USD. The US are now focusing on Japan and China, saying that they cannot keep reducing the value of their currencies. CNY & Asian currencies on average gained by 0.2% against the USD. Trading currencies are mixed, with MXN weakening 0.6%, SEK falling 0.4%, NOK flat, AUD & ZAR firmed 0.15%, JPY strengthened 0.4%, and CHF rallied by 0.65% against the USD.
CAD rebounds from Monday’s low of 1.4542 after Canada announced retaliatory tariffs against the USD. However, this CAD rebound may be short-lived, as the impacts of US tariffs continue to affect the Canadian economy. Additionally, OPEC's announcement to increase output is likely to put further selling pressure on crude oil, which has seen a decline of over 12% year over year, consequently adding more selling pressure on CAD. Technically, look for CAD upside to be limited to 1.4360, while a break of 1.4550 opens up the potential to retest 1.4750 next. Focus will be on PM Trudeau's press conference at 10 am EST.
EURCAD holds to gains after rallying 2% monthly, after the announcement of US tariffs on Canada.
EUR continues to gain traction above 1.0500 despite the ongoing threat of US tariffs on the EU. The Euro rose by 1.1% in March against the USD as fears of a US recession triggered a new wave of USD selling, supporting the single currency’s rally amid rising concerns about US tariffs on the EU.The disappointing US ISM Manufacturing PMI dropped to 50.3 in February from 50.9 in January, indicating a loss of growth momentum in the manufacturing sector’s business activity. Attention will be on President Trump’s speech to Congress for any signals regarding potential tariffs on the EU.
GBPEUR slips in early trading, but remains in positive territory for March as investors remain cautious that the EU will be the next target for US tariffs.
GBP momentum continues to help the pound breach 1.2700 amid a weakening USD. The pound has rallied nearly 200 bps from March lows of 1.2550 as investors assess the prospect of a slowing US economy and the increasing threat of US tariffs globally. The expectation that the UK may avoid US tariffs, along with rising inflation pressures in the UK and the potential stalling of the BoE, contributes to solid support for the pound. Investors will be focused on President Trump’s address to Congress to guide the direction of the pound.
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