FX Daily update 17 March 2025

AUD - the movement in AUD today is largely driven by trump's 25% tariff on aluminium and steel export and China's consumption revival plan annouced over the weekend.

USD - while the FOMC will be announcing its rate this wednesday, the market is expecting that the FOMC will likely hold its current rates, adopting a wait and hold stance, while trump tries to create a recession to force the rates down.

JPY - BOJ is also annoucing rates on wednesday. JPY dropped a little as the market started some covering after the big sell off. However as the equity market is below the 200MA, im expecting a longer drop to the US equities, that will likely cause the JPY to remain elevated. GBP - GBP/USD stretched its previous week’s positive momentum and reached four-month highs just shy of the 1.3000 threshold on Wednesday before entering an upside consolidative phase in the remainder of the week.

US President Donald Trump’s tariff uncertainty, easing fears over a potential recession and aversion to the US government shutdown emerged as key factors lifting the sentiment around the US Dollar. Trump’s 25% global tariffs on imported steel and aluminium came into effect on Wednesday, topping the previously announced tariffs on China and certain Canadian and Mexican products. The US inflation cooldown doubled on the bets that the Fed will resume its rate-cutting cycle starting in June. On the other hand, the BoE has stuck to its cautious rhetoric, hinting at fewer rate cuts amid uncertainty on the inflation outlook.

An unexpected contraction in the UK economy in January also limited the Cable’s upside. The UK Gross Domestic Product (GDP) fell 0.1% after increasing 0.4% in December, according to the latest data published by the Office for National Statistics (ONS) on Friday. Markets projected a 0.1% growth in the reported period. Later in the day, the data from the US showed that the University of Michigan's Consumer Sentiment Index declined to 57.9 in March's flash estimate from 64.7 in February. This data made it difficult for the USD to gather strength and helped GBP/USD hold its ground heading into the weekend. On Thursday, the UK labor market data will be reported before the BoE policy decision. The BoE’s hints on the timing and the scope of further rate cuts will be closely scrutinized for a clear directional impetus on the Pound Sterling.

EUR - EUR/USD trades in a tight range below the key level of 1.0900 in European trading hours on Monday. The major currency pair consolidates as investors await the Federal Reserve’s (Fed) interest rate decision, which will be announced on Wednesday. 

The Fed is almost certain to keep interest rates steady in the current range of 4.25%-4.50%. Therefore, the US Dollar’s (USD) outlook will be guided by the Fed’s dot plot, which shows where officials see interest rates heading in the near and longer term, as well as the growth, employment, and inflation outlook in the Summary of Economic Projections (SEP). In the December meeting, Fed policymakers anticipated two interest rate cuts this year. EUR/USD oscillates in a tight range as the US Dollar consolidates ahead of the Fed’s monetary policy meeting. The Euro (EUR) trades firmly as German leaders, including Franziska Brantner-led-Greens, agreed to set up a 500 billion Euro infrastructure fund and dramatic changes in the borrowing rules or stretch in the so-called ‘debt brake’, which would be approved in the lower house of Parliament on Tuesday. A historic German debt restructuring plan has also increased Eurozone inflation expectations. This scenario is contrary to the European Central Bank’s (ECB) current monetary expansion stance. On Friday, ECB policymaker and Austrian Central Bank Governor Robert Holzmann supported keeping interest rates steady in the April policy meeting. Holzmann's endorsement for a pause in the policy-easing cycle was backed by the assumption that US President Trump’s tariffs and Germany’s defense spending have stemmed risks of a resurge in inflationary pressures.

• Meanwhile, increased hopes of a Russia-Ukraine truce have also improved the Euro’s appeal. Donald Trump is scheduled to meet Russian leader Vladimir Putin on Tuesday to discuss peace in Ukraine. Last week, Ukraine accepted a 30-day ceasefire deal after discussions with US leaders in Saudi Arabia.

• In the near term, the major risk for the Euro is a potential US-European Union (EU) tariff war. On Thursday, President Trump threatened to impose 200% tariffs on European alcohol after the EU proposed retaliatory tariffs on the US against a 25% blanket levy on steel and aluminum imported by the US.

On Tuesday, Germany's CDU/CSU, SPD, and Green Party will vote on the proposed fiscal spending package after reaching a tentative agreement last week.

CAD - All indications are that the US-Canada trade spat can keep escalating. Neither Canadian Conservatives nor Liberals (now led by Mark Carney) are pitching a soft-touch approach on trade ahead of likely elections this spring, and Trump has responded aggressively to retaliations from Canada.

• The Bank of Canada cut rates again in March. We expect only one additional cut by the BoC, as inflationary risks are rising and there may be tolerance for a slowdown if largely caused by tariffs.