US President Donald Trump's announcement of 25% tariffs on Canada and Mexico starting March 04, along with an additional 10% tariff on China, sent shockwaves through the market. This news and reports about the US halting military aid to Ukraine and possible trade retaliations from China and Canada to the US tariffs weakened investor sentiment. Additionally, Trump's accusations against China and Japan over currency manipulation, along with a disappointing US GDP growth forecast per the Atlanta Fed’s GDPNow tracker and unimpressive US PMI data, further added to the uncertainty and weighed on the US Dollar. Against this backdrop, the US Dollar Index (DXY) marked the biggest daily fall in six week by snapping a three-day winning streak.
As a result, the Euro (EUR), British Pound (GBP) and Yen (JPY) reported stellar gains against the US Dollar while the Australian and New Zealand Dollars paused previous declines but lacked major upside momentum. The Canadian Dollar (CAD), however, failed to cheer the USD’s fall amid a slump in crude oil prices, Canada’s main export, whereas Gold recovered from a month’s low to snap a two-day losing streak. Furthermore, cryptocurrencies held lower grounds and equities also closed in the red reflecting overall negative sentiment.
The weaker US Dollar, along with positive Eurozone inflation data and the UK's strong February Manufacturing PMI, drove the EURUSD and GBPUSD to their biggest gains in days. However, concerns over the ongoing Ukraine conflict and the dovish stance of the European Central Bank (ECB) and Bank of England (BoE) kept buyers cautious early on Tuesday. Meanwhile, the British Retail Consortium (BRC) reported a 0.4% rise in shop prices month-over-month for February, but year-over-year prices remained unchanged at -0.7%. The BRC also warned that prices could rise further due to higher employment costs, which in turn challenged the Pound Sterling buyers of late.
Despite a cautious mood ahead of the planned tariffs on Canada, Mexico, and China, which helped stop the US Dollar's decline early Tuesday, the USDJPY pair remained under pressure. Most Japanese officials rejected US claims of currency manipulation, and Prime Minister Ishiba emphasized Japan's stance against currency devaluation. Ishiba also mentioned that he hadn't received any warnings or calls from Trump regarding foreign exchange policy. Additionally, growing expectations of further rate hikes from the Bank of Japan (BoJ) and concerns over US economic growth continued to weigh on the USDJPY.
Unlike other major currencies, the Australian, New Zealand, and Canadian Dollars struggled to benefit from the US Dollar's decline due to their trade ties with China. While AUDUSD and NZDUSD saw positive gains on Monday, the USDCAD rose for the seventh consecutive day, reaching a month-high. This was driven by trade concerns in Canada and a surprising drop in crude oil prices, Canada’s key export, following OPEC+ announcements.
Reuters came out with the news citing a surprise OPEC+ announcements of bringing back the oil barrels from voluntary production cuts in April, as well as intention of rolling over the full 2.2 million barrels per day (mbpd) over the course of 2025 and 2026. The news dragged WTI crude oil to the lowest level in three months on Monday, edging lower of late.
Meanwhile, Gold prices recovered from a month’s low after declining in the previous two days, as a softer US Dollar and the market’s fears of a trade war, as well as grim outlook about the Ukraine-Russia peace deal, directed traders toward the traditional haven.
Bitcoin (BTCUSD) and Ethereum (ETHUSD) reversed their weekend gains on Monday, despite industry optimism linked to Trump. The cryptocurrencies faced pressure from concerns about losing institutional investors' interest, driven by doubts over Trump's ability to create cryptocurrency reserves and broad market pessimism.
With a light economic calendar on Tuesday, market players will focus on key risk factors, including tariff updates, the Ukraine situation, and US Congressional actions for direction. Given the fresh concerns over US negative growth, alongside retaliatory tariffs from Canada, China, and Mexico's stance against Trump’s moves, the US Dollar could remain under pressure unless fresh hawkish signals from the Fed emerge. Strong US jobs and inflation reports, along with positive comments from FOMC members, will be crucial for any rebound. Meanwhile, Gold might continue its early-week recovery, and the Yen could stay in favor due to BoJ concerns and Japan's stronger fundamentals compared to the US. However, EURUSD and GBPUSD could face pullbacks, and the Antipodean currencies, especially the CAD, might struggle to compete with the US Dollar.
May the trading luck be with you!
