March 12, 2025

“The US economic policy uncertainty is dominating markets again, with new, short-lived tariff threats on Canada yesterday keeping volatility elevated for the dollar. The focus today is on US CPI inflation for February, which is set to keep the Fed on hold at next week’s decision.”

Sam Cornford – Head of Trading

USD

Yesterday was a case of another day, another Truth Social post to rattle the markets. This time, in response to Ontario’s 25% electricity import tax to the US, Trump threatened a doubling of the steel and aluminium tariffs on Canada to 50%, which he subsequently withdrew as Ontario backed down. Instead, a global 25% tariff on these metal imports goes in place today. Of course, the difference now is that this trade uncertainty is no longer a clean positive for the dollar, because the markets have become just as – if not more – concerned about the damage to the US economy as to those in Europe. News of a US-Ukraine agreement to propose a ceasefire to Russia also boosted European FX at the expense of the safe havens (USD, JPY, CHF) last night.

A modest recovery in the dollar this morning comes as markets anticipate another sticky CPI inflation report this afternoon. Given that slowdown fears are driving expectations for three rate cuts this year, the 2.9% consensus estimate would be a good reminder of why policymakers are currently on hold. Although a higher-than-expected figure might help the dollar to bounce back, the move may be limited if the market’s diagnosis is broadly stagflationary.

CAD

The loonie’s tariff rollercoaster continues ahead of today’s Bank of Canada rate decision. Trump’s extra threats led to only a short-lived dip as they were withdrawn, but CAD and the Canadian economy face significant downside risks from the persistent uncertainty. This backdrop is why the market is fully pricing a 25bps insurance cut today, despite initially taking policymakers at their word at the last meeting and expecting a pause.

GBP

GBP/USD has been stuck in a choppy, range-bound trade since Friday, though last night it managed to steer the closest it has been to 1.30 since early November. There has been a dearth of UK headlines over the past couple of days, so the pound has been chasing the US policy uncertainty and grinding lower against a stronger euro. US inflation is likely to dominate over the next few days, and then the focus for sterling will switch to Friday’s UK GDP report.

EUR

The euro ploughed through 1.09 yesterday as Germany’s Greens expressed their hope for a debt reform deal and a US-Ukraine negotiating party proposed a 30-day ceasefire in Ukraine. It pulled back slightly overnight, however, in part because the EU has proposed swift retaliation to the US’ steel and aluminium tariffs. The euro is getting some support on the monetary policy side, with ECB President Lagarde saying this morning that the ‘era of shocks’ is making the job harder on inflation, which higher defence spending could also push higher. Speeches from Villeroy, Centeno, Lane, Nagel, and Panetta will fill the airwaves too today.

Markets

The latest round of impulsive tariff threats rattled markets again yesterday, driving equities lower across the US and Europe. The S&P 500 briefly dipped into ‘correction’ territory (i.e. 10% lower than its previous peak) before a mild rally towards the end of the session. European stocks have opened stronger today, however, thanks to proposals for a ceasefire in Ukraine.

Main Economic Events (All Times CET)

1:30pm: US CPI
2:45pm: Bank of Canada Rate Decision

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