Currency market reacts to tariff concerns and US data ahead of key announcement
At the start of this week, the currency market adjusted to the growing tariff threat, with the US dollar strengthening across the board, the yen finding support, and high-beta currencies coming under pressure. The Australian and New Zealand dollars have again been the main underperformers, likely due to expectations that China will continue to be a central focus of US protectionism. In Australia, the Reserve Bank of Australia kept interest rates unchanged overnight, as anticipated. The AUD initially responded positively to the rally but has since returned close to yesterday’s closing level.
Despite recent movements, the dollar has plenty of room to rise if tomorrow’s tariff announcement takes a hawkish (risk-negative) tone, although it remains susceptible to downside pressure from economic data.
The US economic calendar will be pivotal in determining today’s FX movements. However, unless there is a surprise in the data, we would not challenge the dollar’s tentative recovery. Recent comments from the US administration have reduced hopes for a more lenient tariff announcement tomorrow, potentially pushing the DXY above 104.50 ahead of the key release.
Today, JOLTS job openings for February are expected to show a moderate decline to 7.6 million, with additional focus on layoff figures. The ISM manufacturing index for March is forecasted to fall below 50.0, reflecting the worsening sentiment in the sector due to tariff uncertainty.
EUR/USD
EUR/USD managed to maintain its position yesterday, staying above the 1.08 level as markets prepare for the forthcoming "Liberation Day" tariff announcements from the Trump administration. The broader impact of these tariffs is adding to the prevailing uncertainty.
Germany's March inflation figures, which show a slowdown to 2.3% year-on-year, suggest potential interest rate cuts from the ECB, which could exert additional downward pressure on the euro in the longer term. However, in the near term, attention will remain focused on the reciprocal tariff announcements scheduled for 2nd April, as well as any retaliatory measures from Europe. This is likely to help keep the EUR/USD elevated for today.
With solid support at the 200-day moving average (DMA) at 1.0728, we expect the pair to remain above this level. However, potential gains appear limited due to ongoing concerns about global stagflation and recession risks. Today's EU inflation data is anticipated to show softer price pressures within the economy, helping to keep the pair within range.
GBP/USD
GBP/USD has managed to hold steady, maintaining its range between 1.29 and 1.30. The immediate technical outlook for the currency pair appears cautiously optimistic, with stability around the 1.29 mark. The Bank of England's cautious stance on monetary policy, influenced by February's CPI reading of 2.8% year-on-year, has sparked speculation about potential interest rate cuts in May. However, market focus remains on the near-term outlook, particularly the upcoming "Liberation Day" tariff announcements from President Trump, scheduled for 2nd April. Of particular interest is the proposed 25% tariff on the automotive sector, which could have significant implications for global trade dynamics.
While recent weakness in the US dollar has provided some support for sterling, this trend could quickly reverse depending on the scale of the impending tariff package. As such, the 1.2805 support level remains a critical area to watch for any signs of bearish momentum.
