CAD
The loonie was a notable standout on Tuesday for all the wrong reasons. CAD sold off against the dollar, even as the greenback gave up ground against the rest of the G10 complex. This move has taken USDCAD firmly through 1.43, with markets now starting to price tariff risks back in for the pair as the March 4th deadline approaches. This should be the main driver for the loonie today too, with an otherwise blank data calendar to consider. And in our view, we still think there is plenty of USDCAD upside left on the table. After all, the pair reached 1.48 during the last round of tariff worries in early February. A similar move from current levels would imply a further 3% downside for the loonie over the coming week, a concern we see as very credible unless a further tariff suspension is agreed, and there have been few signs of progress on that front yet.
USD
The dollar slipped once again on Tuesday, with the DXY falling to 106.20 overnight. The greenback’s fall comes as traders voice growing concern over the state of the US economy, a dynamic reinforced by comments from Treasury Secretary Bessent yesterday suggesting that US growth is “brittle” and “the private sector has been in recession”. This saw Fed rate cut expectations briefly price a cumulative 64bps of easing for this year in the early hours of this morning – a sharp turnaround from a fortnight ago when swaps briefly flirted with the idea of no rate cuts at all. That said, while we can see some signs for concern building, we are inclined to offer a word of caution too. First, US exceptionalism has always been a relative argument. The Chinese economy remains in the doldrums, and while there is some potential upside on the horizon for Europe, a sustained pickup in growth is likely a second-half-of-the-year story. Second, absent something breaking, the US economy is likely to continue to perform well on a relative basis. It is very hard for growth to slow to a crawl when the government continues to run historic deficits, no matter the doom and gloom rhetoric, while the labour market continues to prove resilient. Third, while tariffs do pose a downside risk to US growth, they are likely to hurt other countries more, sustaining US outperformance, albeit at a lower rate of growth. Moreover, this downside growth impact under such a scenario comes because of higher for longer Fed rates. In other words, the acceleration in Fed easing bets that is weighing on the dollar, looks inconsistent to us. We continue to think tariffs are coming, and the favours the dollar retracing higher. Indeed, that has been the story so far this morning, with the DXY index now back at 106.50 as of writing.
EUR
EURUSD price action continues to be primarily driven by events on the US side of the Atlantic. Yesterday that saw the pair rally in line with the greenback’s selloff, with the pair threatening 1.05 before a pullback early this morning. Today, consumer confidence readings for both France and Germany have done little to dispel the notion that household demand on the continent remains soft. And, with little else on the docket, that should keep the euro trading at the mercy of the dollar once again.
GBP
While the pound did manage to make some headway against the dollar on Tuesday, sterling underperformed the euro, in keeping with the pound’s relatively greater sensitivity to global risk conditions. That said, given our view that worries about a slowdown in US growth are somewhat overstated, we are inclined to see this drop for GBPEUR as a temporary pullback for now. But with only the BoE’s Dhingra coming up to do from a UK perspective, the pound looks likely to tread water, with all eyes on tomorrow’s meeting between President Trump and PM Starmer as the next big sterling risk event.
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