The activation of US tariffs on Canada, Mexico, and China, along with retaliatory measures, shook markets on Tuesday. However, concerns about slower US growth and tighter fiscal policies weighed on the US Dollar, even as New York Fed President John Williams warned about inflation risks tied to Trump's tariffs, hinting at "higher for longer" interest rates.
On Wednesday, updates from China's National People's Congress helped ease market fears, with China targeting 5% GDP growth for 2025 and expressing a willingness to resolve trade issues with the US through dialogue. However, an article on deficits dampened hopes for fiscal stimulus, and Beijing’s reaction to the US tariffs added more pressure to market optimism.
Meanwhile, President Trump’s State of the Union (SOTU) speech reiterated his tough stance on tariffs and announced incentives for domestic producers, further shaping trade policy.
In the markets, the US Dollar Index (DXY) fell to its lowest point since early December 2024, after a sharp drop in recent days. The Euro, British Pound, and Japanese Yen gained ground as the Greenback weakened, while the Antipodean currencies rose despite weak crude oil prices. As markets became jittery, traders flocked to Gold, driving it to a weekly high, while cryptocurrencies and equities saw modest declines.
The downbeat US Dollar, combined with a softer Eurozone unemployment rate and hopes for increased investments in Germany, helped drive the EURUSD pair to its highest level since early November 2024. The Euro traders are now focused on today’s key US ADP Employment Change and ISM Services PMI reports.
Meanwhile, the USDJPY pair struggled for direction, as allegations of currency manipulation from the US and mixed comments from Bank of Japan officials kept the Yen under pressure. The pair hit a five-month low yesterday before recovering slightly, but it still lacks strong momentum.
Despite uncertainty over the Bank of England’s next move and doubts about the UK government’s ability to boost growth through higher taxes, the GBPUSD pair closed above the 200-SMA for the first time in four months the previous day. On Wednesday, the Pound hovers near a three-month high, supported by a weaker US Dollar and recent improvements in UK data compared to downbeat US statistics.
The US Dollar’s weakness and news from China helped boost the Australian, New Zealand, and Canadian Dollars earlier, but now the AUDUSD, NZDUSD, and USDCAD pairs are consolidating due to mixed factors.
For the Aussie (AUD), the RBA’s dovish outlook is a challenge, but stronger GDP and comments from RBA Deputy Governor Hauser have provided some support. Similarly, the Kiwi (NZD) faces pressure from the RBNZ’s dovish stance and uncertainty around the resignation of its Governor.
As for the Canadian Dollar (CAD), US tariffs on Canada and weaker oil prices, its main export, limit its strength. Still, USDCAD buyers remain hopeful, as any stabilization in oil prices could help the CAD.
Market uncertainty surrounding US tariffs and global tensions, especially with Ukraine and Iran, is pushing traders toward Gold as a safe-haven asset. This shift is amplified by the softer US Dollar, helping Gold recover from a monthly low, despite some cautiousness after two days of gains.
On the other hand, Crude Oil is struggling. Even with a surprise draw in US oil inventories reported by the American Petroleum Institute (API), oil prices are still falling for the fourth straight day, hitting their lowest point since mid-November 2024. Despite the weaker US Dollar, oil isn’t finding support, especially with talks of increased OPEC+ output starting in April, which could further weigh on prices.
The crypto market has been consolidating ahead of the White House Crypto Summit, which helped Bitcoin (BTCUSD) and Ethereum (ETHUSD) recover by the end of Tuesday after a bearish start to the week. However, concerns about Trump's stance on crypto and ongoing geopolitical fears keep buyers cautious, limiting the upward momentum for both cryptocurrencies.
The market will be closely watching the global response to Trump’s tariffs and his positions on Ukraine and Iran, as these are likely to be major catalysts. Additionally, the US ADP Employment Change and ISM Services PMI for February will provide key insights into market direction. If Trump is willing to roll back tariffs on Canada and Mexico, depending on negotiations, it could spark optimism in the market and support further US Dollar strength, especially if coupled with strong US data.
However, if tariff tensions escalate or US economic data disappoints, it could weigh on the Greenback, boosting safe-haven assets like Gold, and putting downward pressure on EURUSD and GBPUSD.
Currency pairs like AUDUSD, NZDUSD, USDCAD, and USDJPY could show mixed movements due to their own unique catalysts, while crude oil is unlikely to recover much, given the ongoing OPEC+ supply increases. Cryptocurrencies and equities, facing a broadly pessimistic economic environment, may struggle to rebound in the near term.
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