March 10, 2025

“US inflation data and a UK GDP print are in focus after a huge amount of volatility last week. Meanwhile, we have US-Ukraine talks in Saudi Arabia and possibly some new updates on tariffs.”

Sam Cornford – Head of Trading

USD

The historic spike in FX volatility last week seemed to come out of nowhere, as developments on both sides of the Atlantic pushed the dollar in a weaker direction. In Europe it was Germany seeking to release itself from its fiscal shackles with huge spending plans, and in the US it was steadily increasing fears about growth losing momentum. However, the underlying cause for both is the same: Trump’s back-and-forth on economic and defence policy. This continued over the weekend – calls for the US to leave NATO, including from Musk at the weekend, will probably strengthen Europe’s resolve to spur a huge increase in defence spending, while Trump’s newest threat towards Canada was on reciprocal tariffs for dairy and lumber as soon as today.

Two developments on Friday have helped the dollar to consolidate near a four-month low. Non-farm payrolls came in a touch weaker than the official estimate but above the whisper consensus, at a relatively solid 151K. Fed Chair Powell also reassured markets that the economy is ‘in a good place’. The focus this week will be on CPI and PPI inflation on Wednesday and Thursday, and job openings data tomorrow.

CAD

The ex-head of both the Bank of Canada and the Bank of England – Mark Carney – became leader of the Liberal Party and therefore the Canadian Prime Minister yesterday with 86% of the vote. This was the expected outcome so USD/CAD is relatively unchanged, but he had some stern words for Trump , arguing that ‘he’s attacking Canadian workers, families, and businesses’ and threatening possibly some unprecedented action. He will also need to worry about a possible no confidence motion and an election due this year.

GBP

While the FX rally was a story more for the EU than for the UK, sterling still managed its best week versus the dollar since late 2022. The data calendar is relatively quiet over the next couple of days, so the focus is on a monthly GDP number on Friday, where the consensus is looking for 0.1%, down from 0.4% in December. A soft figure would be a good reminder of the hurdles to further sterling strength given the flatlining economy and stall in hiring. The last time the pound had such a strong yield advantage, GBP/USD was trading in the low 1.30s.

EUR

The market really absorbed Germany’s spending plans as a gamechanger for European growth, and last week’s 4.4% rally was the euro’s best gain since 2009. We now have to watch German policymakers push this through, as time is ticking to get the debt brake reforms through using the old parliament, before the new one loses CDU/SPD vote share. With the rally in EUR/USD dependent upon this getting through, there might be some nervousness over the coming weeks. We get the Sentix investor confidence data today, as well as some ECB speakers.

In Norway, markets have slashed the implied probability of a first rate cut this month from a near-certainty to a 50/50, after core inflation unexpectedly surged from 2.9% to 3.4% in February.

Markets

Futures are hinting at a rebound in European equities at the open this morning after a 1% drop on Friday. US markets ended higher as Fed Chair Powell reassured investors that the economy is ‘in a good place’, but they remain down sharply over the last month owing to concerns about flip-flopping tariff policy and a slowing economy.

Main Economic Events (All Times CET)

8:00am: Norway CPI Inflation
10:30am: Eurozone Sentix Investor Confidence

To learn more about Ballinger Group, please visit our website or our LinkedIn page.