March 18, 2025

“Sterling and the euro are touching fresh five-month highs this morning as investors once again start to express concern about the health of the US economy. A promising fiscal spending vote in Germany and the potential for a ceasefire in Ukraine are also putting pressure on the dollar.”

Sam Cornford – Head of Trading

USD

Growth concerns were the topic of the day again for the dollar, which has sunk back to the five-month lows hit earlier in the month. Retail sales missed the 0.6% estimate to rise only 0.2% in February, and the Empire Manufacturing Index slumped to a 14-month low, knocking the Atlanta Fed’s running model estimate of Q1 GDP back to -2.1% from -1.6% as a result. Remember that pessimism around the consumer is one of the main underpinnings for the dollar’s post-inauguration weakness, with US households appearing to hold back on their spending plans as Trump floods the papers with economic headlines and retirement accounts shrink with the falling equity market. In other words, when the President himself won’t rule out his policy leading to a recession, you are going to start putting money aside.

The only data on the docket today is industrial production, which may have an impact on growth expectations for the first quarter. The focus is likely to be on Trump’s call with Putin around a Ukraine ceasefire, and the Federal Reserve decision tomorrow. USD/CAD will be worth a watch, too, as Canadian inflation is expected to inch up to 2.2% following the expiry of a sales tax holiday.

GBP

GBP/USD has pushed through the 1.30 handle for the first time since November. Sterling has not been in control of its destiny this month – it has moved almost entirely through the economic narratives in the US and the EU. Once again today, it is a US-led convergence in the transatlantic gulf in growth that is behind the pound’s gains. These external narratives should remain in charge today, before the Bank of England gets to have its say on Thursday.

EUR

The euro is trading at a five-month high, and 1.10 is on the horizon going into today’s Bundestag vote on Merz’s fiscal spending splurge. That vote is very likely to go through now, so its positive impact on the euro has probably been exhausted for now. The next big round of strength based on this narrative alone might need its real economic impacts to start being borne out in the data over time. There are plenty of other opportunities for a move, however, and the focus today will be on the ZEW investor confidence index and on the possibility for some concrete steps towards peace in Ukraine. Any progress made in the Trump-Putin call can send European FX higher, although there is concern that he might start giving away harmful concessions on behalf of Kyiv.

Markets

Friday’s rebound extended into yesterday’s session as markets continued to calm, with US equities now up 3% from their trough last week. Gold has pushed back through $3,000/oz overnight.

Main Economic Events (All Times CET)

11:00am: ZEW Economic Sentiment
1:30pm: Canadian CPI
2:15pm: US Industrial Production

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