CAD
The Canadian dollar was highly volatile last week following the U.S. tariff announcement. USDCAD initially surged as markets reacted to the 25% import levy on Canadian goods but reversed some losses after announcing a 30-day suspension on Canada and Mexico.
While the Loonie recovered some ground, risks remain elevated. Markets will watch for further policy concessions from Canada and whether the tariff suspension becomes permanent.
Friday’s Canadian jobs report will also be a key domestic event, with employment trends likely influencing BoC rate expectations.
USD
Last week, the U.S. dollar experienced heightened volatility, driven by shifting tariff risks and mixed macroeconomic data. The U.S. decision to impose tariffs on China, Canada, and Mexico initially led to a sharp decline in risk appetite, fuelling dollar strength. However, sentiment improved after a delay was announced for Canada and Mexico, alongside a muted retaliatory response from China, tempering USD gains.
The January U.S. labour market report presented mixed signals—nonfarm payrolls missed expectations, but the unemployment rate declined, and wage growth accelerated. This data reinforced the view that the Federal Reserve may remain patient on rate cuts as policymakers continue to assess broader economic conditions.
Wednesday’s U.S. CPI release will be a key market focus, with expectations for a 0.3% month-over-month increase and an annualized 2.9% reading. A higher-than-expected print could bolster the dollar, while a downside miss may soften rate cut expectations. The DXY index is trading near 107.5, reflecting a cautious stance ahead of this data.
EUR
Last week, the euro faced downward pressure as concerns over potential U.S. tariffs on the EU weighed on sentiment. EUR/USD traded within a wide range, reflecting uncertainty over trade risks and mixed eurozone data.
While last week’s U.S. tariff measures did not directly impact the euro, markets continue to price in a risk premium for possible future trade conflicts. This week, traders will focus on eurozone industrial production figures and ECB commentary, particularly regarding policy direction amid external trade threats.
GBP
In line with expectations, the Bank of England (BoE) cut rates by 25bps last week, bringing the Bank Rate to 4.5%. The 7-2 vote split, with two members advocating for a 50bps cut, signalled a dovish stance, reinforcing expectations that further easing remains possible if economic uncertainty persists.
The BoE emphasized a cautious approach to policy, recognizing the uncertain economic outlook and opting to move gradually rather than aggressively. Sterling remained range-bound last week, with GBP/USD fluctuating and EUR/GBP trading within recent levels.
This week, the UK’s Q4 GDP release will be the main event risk, offering fresh insight into the economic trajectory amid monetary policy easing.
JPY
The yen strengthened as risk-off flows briefly pushed USD/JPY lower. However, with U.S. Treasury yields remaining elevated, JPY upside was limited.
Markets will closely monitor Fed guidance and trade risks this week, as a further escalation in tariff tensions could reignite safe-haven demand for the yen.
This content was originally published by our partners at Monex Canada.