March 21, 2025

“The dollar has had some strong momentum over the last few days as the market has become somewhat nervier ahead of the flood of event risk coming over the next few months. The April 2^nd deadline for Trump’s widespread tariff round is quickly approaching.”

Tim Hallinan – Trading Director

USD

FX has been relatively noisy since the Federal Reserve decision and yesterday was a strong day for the broad dollar without an obvious reason. Whether down to the impending April 2^nd tariff deadline, cooling optimism about European fiscal spending, or the prospect of slow progress in Ukraine, sentiment appeared to weaken broadly. It was not a rate differential story, which you would expect to be mildly negative for the dollar, with US yields trading around 10bps lower than before the Fed decision thanks to Powell’s ‘transitory’ tag. No data today, but we do see Fed speakers return following the communication blackout, with Goolsbee and Williams set to deliver some comments. Goolsbee tends to be more on the dovish side of the spectrum.

GBP

An extra cautious Bank of England helped sterling to outperform on some of the crosses yesterday, and GBP/EUR found its highest level in two weeks, though it shed some of its recent gains versus the dollar. The BoE has been settled in a once-per-quarter pace of rate cuts since last August, and that still looks to be the cadence that policymakers are comfortable with. The MPC voted by 8-1 for a rate hold at 4.5%. Catherine Mann managed to complete a full 360, having switched from an arch-hawk to voting for a 50bp rate cut to again preferring rates to be held steady. The market is only pricing in two more rate cuts before the end of the year, suggesting that June might be the beginning of an even slower pace of easing. This makes a more rapid weakening in the labour market a significant vulnerability for sterling, and a hurried cutting cycle could see yields fall relatively dramatically.

EUR

The euro has pulled back from its 1.0950 peak on Tuesday and could make a break below the 1.08 handle if the dollar’s momentum continues today. The 2-year rate differential has moved relatively steadily in the dollar’s favour over the past couple of weeks, and EUR/USD appears to be catching up to the fading attention on the incoming fiscal stimulus and the lack of evidence in the hard data for a US economic slowdown. The data calendar is limited to some current account data this morning – key for the euro now will be Monday’s suite of PMI data for a fresh look at the US-Europe growth differential.

Markets

Risk appetite softened amongst the noise yesterday, leaving stocks in the red across the US, Europe, and Asia. Germany’s DAX fell up to 2% before trimming losses to 1.2% by the end of the session, while the S&P 500 managed to keep the drop contained to 0.2%.

Main Economic Events (All Times CET)

8:00am: UK Public Borrowing
1:30pm: Canadian Retail Sales
4:00pm: Eurozone Consumer Confidence

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