Dip buyers come to the rescue
Yesterday’s market session unfolded in two distinct phases, as investors began the week by selling risk assets amid growing concerns of a slowdown in the United States. Recession fears intensified following weaker-than-expected leading indicators from the Chicago and Dallas Federal Reserves. US equities declined, bond yields plummeted, and the dollar followed suit, weighed down by worsening sentiment.
However, dip buyers stepped in during the US session, helping equities and the greenback recover some losses. Overall, the impact of the day’s news and data appeared to be neutral for the markets. That said, recent concerns about economic growth could pose a greater risk to assets if weak economic data persists, making secondary indicators increasingly important to monitor.
The dollar ended the day slightly lower after briefly touching its weakest level since mid-December. As highlighted in our feature for Fortune, the dollar remains under pressure for two key reasons: the absence of new tariffs, which has reduced safe-haven demand, and the Federal Reserve’s pause, which is tied to rising inflation expectations rather than strong macroeconomic data. With recent data reaffirming these trends, the dollar has struggled to benefit from stable interest rates, currently sitting at its lowest level this year, down 3.4% from January’s peak.
For a meaningful rebound, dollar bulls will require either stronger US economic data or renewed tariff enforcement by Trump. The latter could materialise today, as Trump reiterated overnight that tariffs on Canadian and Mexican goods will be implemented once the delay expires.
New government, old challenges
The euro briefly climbed above $1.05, reaching its highest level in nearly a month before retreating to $1.0460. Investors see the potential for increased fiscal spending, particularly in defence, as a means of supporting economic activity. However, fiscal constraints may limit the impact, as political obstacles complicate efforts to increase spending. Meanwhile, business sentiment is displaying cautious optimism, though immediate economic conditions remain subdued. We will continue to monitor political developments and key macroeconomic releases, as they will play a crucial role in shaping the near-term direction of EUR/USD.
Following the outcome of the German election, Chancellor-designate Friedrich Merz is actively engaging with the Social Democrats (SPD) to accelerate defence spending in response to escalating geopolitical tensions. However, the rise of fringe parties, securing a minority with blocking rights, has complicated efforts to amend the constitutional “debt brake,” which restricts government borrowing. To navigate these constraints, Merz is considering pushing through reforms in the current parliament before the new session begins on 24 March. These political manoeuvres have added uncertainty to the euro’s performance, as markets assess their potential economic impact.
On the macroeconomic front, the Ifo Institute’s latest survey indicates a modest improvement in business expectations, with the index rising to 85.4 in February, up from 84.3 in January, and exceeding forecasts of 85.0. However, current conditions deteriorated, highlighting that while businesses are hopeful about the future, they continue to struggle with present challenges.
Pound facing resistance
Sterling climbed to a nine-week high of $1.2690 before encountering resistance near $1.27. Strong UK data and persistent inflation in recent weeks continue to provide support, leaving room for further gains—especially if US economic momentum slows in tandem.
However, geopolitical risks remain a key factor. Trump’s tariff agenda, while not directly targeting the UK, could disrupt global trade flows, particularly with China and the eurozone, leading to potential knock-on effects for Britain. Meanwhile, elevated UK inflation continues to support sterling, but a renewed rise in gilt yields—towards January highs—could shift rate expectations from a tailwind to a headwind if fiscal concerns resurface.
This morning, the pound is trading in the lower $1.26 range, as a risk-off mood takes hold following Trump’s overnight comments. The administration is set to raise tariffs on major trading partners and is considering further restrictions on China’s access to advanced chips, adding fresh uncertainty to the markets.
