Tariff Uncertainty & Central Bank Signals Drive Sentiment.
Currency markets are navigating a complex mix of trade policy developments and evolving central bank guidance this week. The U.S. dollar has edged lower amid uncertainty over tariff implementation, while the euro and British pound are finding support from improved economic indicators and cautious policymaker rhetoric.
The U.S. dollar is trading just below a recent three-week high as markets digest the impact of President Trump’s proposed reciprocal tariff measures, due to come into force early next month. While initial concerns sparked volatility, reports that some of the sector-specific tariffs may be watered down have offered mild relief. Traders are now waiting for confirmation of the final structure, with broader implications for inflation and consumer demand hanging in the balance.
The euro is holding firm after comments from key European Central Bank officials signalled a cautious approach to monetary easing. While inflation data continues to move in the right direction, policymakers have highlighted the need for measured decisions, citing falling energy costs and a stronger euro as factors accelerating disinflation. Markets have slightly pushed back expectations for immediate rate cuts, supporting the single currency for now.
The British pound is steady, underpinned by a stronger-than-expected performance in the services sector. UK private sector activity accelerated to its fastest pace in six months, offsetting weaker readings in manufacturing. Sterling is also benefitting from growing optimism that the UK may be spared from some of the broader trade frictions linked to upcoming U.S. tariffs.
Key Data Releases This Week:
Wednesday: U.S. Durable Goods Orders
Thursday: U.S. Q4 GDP (final reading)
Friday: UK Consumer Confidence; Eurozone Inflation Data
With trade decisions and inflation data dominating the calendar, markets will be guided by the tone of central bank commentary and any further clarity on U.S. trade policy. A clearer picture may emerge by the end of the week, offering fresh direction for currency markets into the close of Q1.
