Dollar Strengthens Ahead of Inflation Data
- Feb 28
- 3 min read
GBP : Pound unfazed by trade concerns
The fact that the GBP/EUR exchange rate rises when tariff noise increases is evidence of UK Prime Minister Keir Starmer's comparatively cordial relationship with Donald Trump. It's unclear if the US and the UK can reach a new trade agreement, but the UK is undoubtedly less vulnerable to tariffs than its European neighbors. It's difficult to argue against the GBP/EUR reaching significant highs at €1.2158 (0.8225) the next week.
The fact that the GBP/EUR exchange rate rises when tariff noise increases is evidence of UK Prime Minister Keir Starmer's comparatively cordial relationship with Donald Trump. It's unclear if the US and the UK can reach a new trade agreement, but the UK is undoubtedly less vulnerable to tariffs than its European neighbors.
EUR : Euro wary of tariff concerns
The severity of the tariff threat has served as a wake-up call for the EUR/USD, and prices have increased in response. The opinion is that the EUR/USD pair can go to the $1.0000/1.0200 region in the second quarter as tariffs come in more broadly and the ECB lowers the deposit rate to 1.75%. We were never in the camp that said a global trade war had been fully incorporated into global FX markets.
But we've been here before. Additionally, any news of Canada and Mexico reaching an agreement with Washington could cause the EUR/USD losses from yesterday to reverse. However, the threat of tariffs and their effect on global growth are now negative for the euro. Furthermore, we anticipate that investors will be taking more protective stances in light of the event risk on Tuesday.
The German CPI, some final GDP figures, and an ECB survey of inflation expectations are the main topics of today's and the eurozone schedule. ING Bank believes that there is a short-term window for the EUR/USD to decline and that the intra-day barrier of $1.0400/0420 can hold. A move below $1.0370 might lead to $1.0330 and possibly even $1.0280 by next Tuesday.
USD : Dollar strengthens after tariff announcements
Financial markets will be impacted by the tariffs, which President Trump said will go into force on March 4. Bond markets have flattened with reduced growth expectations, equity markets are down (with notable drops in Korea and Japan), and the dollar has risen against the majority of other currencies. Given its possible losses, Mexico is likely to reach an agreement while there is still time for talks. In anticipation of an agreement, the peso is remaining stable. Given that the Liberal administration resists pressure from the US, Canada might be less willing to engage in negotiations. The USD/CAD exchange rate may increase to CAD$1.48 if tariffs are imposed.
In addition to the February hike, the additional 10% duty on China is an aggressive measure. Beijing would react more forcefully to it, which might lead to rumors of a depreciating Yuan. Given the focus on the USD/CNH exchange rate, this could potentially have an effect on developing market currencies. There may be a slight dollar-negative impact from today's US data, which includes weak January expenditure and a potential surprise in core PCE. Nonetheless, the general positive trend of the dollar, which is fueled by trade battles, is still in place. Expect the DXY to increase to 108 today as it is centered on European currencies, with the Yen outperforming on crosses.
