Morning Report
February 27, 2025
“Tariffs and the US economy are once again in focus for FX today, with GDP and jobless claims data in focus. Trump left the market confused yesterday by some contradictory comments on the implementation of tariffs, and that dulled the impact of a threat to slap 25% tariffs on the EU.”
Tim Hallinan – Trading Director
USD
A rather confusing but provocative set of tariff comments from Trump strengthened the dollar overnight, although the impact of his threats on FX is clearly fading. He launched a vague tariff threat at the EU which will be ‘25% generally speaking, and that will be on cars and all other things’, arguing that the EU’s primary purpose was ‘to screw the United States’. He also appeared to jump the gun on the Mexico and Canada tariffs that were due to be reinstated next week, hinting that they would come in April instead. The White House soon assured that they would still come into effect on Monday ‘as of this moment’. At this point, it is questionable how reliable a signal that any of this is for actual policy, and to some extent markets have simply given up trying to make sense of it – EUR/USD is still a far cry from parity, which many had been worried about at the beginning of the year.
Meanwhile, there is still a strong focus on whether the US economy might be weakening off. Yesterday, DOGE’s government efficiency drive involved telling federal agencies to prepare for large-scale layoffs in March, which could have cascading impacts that cause job losses for government contractors. The second estimate of Q4 GDP probably won’t be a major mover, but there may be more attention than usual on the unemployment claims print.
GBP
GBP/USD briefly pierced through the 1.27 handle yesterday for the first time since mid-December, in a rally that was cut short by Trump’s cabinet meeting. PM Starmer travels to the US to talk with Trump today, and the two are set to hold a press conference at 14:00 local time. He and the Chancellor have been trying to appease the US President over the last couple of days with pledges to increase defence spending and to ramp up transatlantic trade flows. GBP/EUR has benefitted from the EU tariff threats, with the pound once again benefitting from its relative invulnerability to the direct impacts of US goods tariffs.
EUR
The euro has largely stuck to trading according to macro fundamentals over the past couple of weeks as tariffs lose their sting. The weakening US economy and a strengthening in bets for Federal Reserve rate cuts this year have allowed EUR/USD to test the 1.05 mark several times, although we are yet to see a catalyst convincing enough to keep us up there. The February inflation data kicked off this morning with a 3.0% CPI print in Spain – the headline met estimates, but the core measure dropped to 2.1%. Belgium, France, and Germany all follow tomorrow morning, all of which are expected to soften slightly. We also get some minutes from the January rate meeting this afternoon
Markets
Strong earnings in Europe lifted the continent’s Stoxx 600 index to a record high yesterday, while the S&P 500 in the US barely moved at all. Nvidia earnings is normally something of a macro event for markets, but it was neither here nor there for markets that are caught up in Trump’s tariff threats and a slowing US economy. Revenue grew 78% to just under $40bn, however, and confirmed that there is still strong demand for the chips.
Main Economic Events (All Times CET)
9:00am: Swiss GDP
9:00am: Spanish CPI
1:30pm: ECB Meeting Minutes
2:30pm: US Q4 GDP 2nd Estimate & Jobless Claims
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