Euro Showing No Signs of Slowing Down
- Mar 5
- 3 min read
Updated: Mar 17
GBP : BoE speeches take the stage
Andrew Bailey, Huw Pill, Megan Greene, and Alan Taylor, members of the Bank of England MPC, will speak before the Treasury Select Committee today at 14:30 GMT about the 25bp rate drop that was implemented in February. In contrast to the 72–73 bps of easing anticipated by the Federal Reserve, markets are pricing in only 57 bps of BoE reduction for the year.
Even if the majority still expect three rate cuts from the BoE in 2025, recent remarks from dovish members such as Dave Ramsden have stressed the need for a gradual approach and caution, with prolonged wage rise in the private sector continuing to be a major issue. It appears unlikely that there will be a big dovish surprise today, except from the significantly dovish views of external member Alan Taylor. A break over the resistance level of $1.2810, where the GBP/USD is currently trading, could lead to another leg higher in the rally.
EUR : Euro showing no signs of slowing down
President Donald Trump's ΄΄tariffs dance΄΄ has been weighing on the US currency since the start of the week, but the single European currency is still moving strongly upward and is approaching the crucial level of 1,07. A fairly difficult trade war is now imminent as a result of President Trump's combative words and divisive actions. Since the phenomenon is becoming more widespread and retaliatory tariffs between major trading partners raise the prospect that inflationary pressures will also return to the European Union, the previously held belief that imposing tariffs is the only way to raise inflation in the US is now being questioned. However, the exchange rate had been in a regulated fluctuation range for a considerable amount of time, making it quite predictable. As a result, many stop-loss orders have now been activated.
The European currency had the chance to get close to the crucial levels of 1,07 and 1,08, but in my view, the primary factors that had been weighing it down in recent months have not been eliminated. As a result, the continued increase, the breaking of the 1,08 level, and the ability to remain above it represent a significant challenge and possibly a big surprise.
USD : Dollar looking untradable
Yesterday, as European currencies rallied on hopes of significant fiscal stimulus, the DXY trade-weighted Dollar index fell below 106. As US tariffs pull global equities down 2–3%, push two-year Treasury yields below 4.00%, and weaken the dollar, two major drivers were the European Commission activating escape clauses from the Stability and Growth Pact, potentially unlocking EUR800 billion in measures, and Germany suspending its debt brake to launch a EUR500 billion infrastructure fund. More attention is anticipated at today's European Council meeting.US tariffs are causing the dollar to weaken, two-year Treasury yields to fall below 4.00%, and global stocks to drop by 2% to 3%. In his State of the Union, President Trump warned tariffs would cause a “little disturbance”—one already pressuring US activity, with the Fed’s terminal rate repriced to 3.50% from 3.75% in four weeks.
Uncertainty about tariffs hasn’t helped. USD/CAD temporarily hit C$1.4500 on a US-Canada trade feud before US Commerce Secretary Howard Lutnick indicated a possible relief option. However, reversals might be gradual due to the administration's reliance on tariff revenues, and broader tariffs are probably in the works for April.
This week's focus is Friday's jobs report, with today's ADP and ISM Services data also in view. While weaker US data could keep the dollar under pressure in March, tariffs may take center stage in April. DXY looks vulnerable to 105.10/40, with a deeper move toward 104.00 likely only if NFPs disappoint significantly.
