EUROPEAN FX UPDATE: USD on the backfoot as tariff deadline looms

USD: DXY -0.3%; 107.03

• The latter stages of trade on Friday saw a focus on the geopolitical footing given the heated exchange between Trump, Vance and Zelensky. Whilst this still remains a core issue for the market, attention this week is pivoting back to the trade front given tomorrow's looming deadline for tariffs on Mexico, Canada and China. On which, US Commerce Secretary Lutnick said there will be tariffs on Canada and Mexico on Tuesday but President Trump will decide at what levels; suggests the figure could be lower than the touted 25% level, if implemented. Furthermore, China is studying countermeasures to the US; will likely include tariffs and a series of non-tariff measures. Today's docket includes US manufacturing PMI following a recent soft run of US data prints. Greater attention lies on Friday's jobs report. DXY is just about holding above the 107 mark. If breached, 27th February low sits at 106.52.

EUR: EUR/USD +0.6%; 1.0437

• EUR is firmer vs. the softer USD and one of the better performers across the G10 complex. Despite the tense conversation on Friday between Trump-Vance-Zelensky, markets remain optimistic over Europe's efforts to provide a plan to get the US and Ukraine back to the negotiation table. The UK and France are also willing to participate in peacekeeping forces as an act of reassurance to Ukraine. Elsewhere, EZ manufacturing PMI was revised a touch higher but ultimately remained below the 50 threshold. EZ flash CPI for February saw the headline (2.4% vs. Exp. 2.3%) and super-core (2.6% vs. Exp. 2.5%) metrics print a touch above expectations, whilst services fell to 3.7% from 3.9%. This week is of course ECB week with the GC widely expected to pull the trigger on another 25bps rate cut; attention is on whether policy is still deemed to be restrictive. EUR/USD has moved back above its 50DMA @ 1.0388 and gained a firmer footing on the 1.04 handle after briefly breaching Friday's peak @ 1.0419. Next target comes via the 27th February peak @ 1.0492.

JPY: USD/JPY -0.1%; 150.37

• USD/JPY has pulled back after hitting resistance at the 151.00 level with the pair dragged lower amid the softer dollar and the early mild upside in Japanese yields; 30-year JGB yield touched its highest since October 2007. Elsewhere, Japan's Top-Currency Diplomat Mimura said he is hearing from not only big firms but from small/medium ones about the strong prospect of wage increases. USD/JPY briefly made its way onto a 149 handle with a current session trough @ 149.95. If downside resumes, Friday's low kicks in @ 149.10.

GBP: GBP/USD +0.4%; 1.2632

• GBP is a touch firmer vs. the broadly weaker USD with UK newsflow on the light side and potentially set to remain so this week given the light calendar. The only real notable event this week is BoE Governor Bailey et al's appearance before the Treasury Select Committee on Wednesday. This morning's manufacturing PMI showed an upward revision to the flash print but ultimately remained well in contractionary territory. Given the lack of notable UK newsflow, it is likely that the USD could be the driving force for Cable in the near-term given tomorrow's looming tariff deadline. Cable has breached Friday's 1.2622 high with the next upside target coming via the 27th February high @ 1.2688.

Antipodeans: AUD/USD +0.2%; 0.6221. NZD/USD +0.2%; 0.5605

• Both have received some mild reprieve after trickling lower throughout most of last week, while the latest manufacturing PMI data from Australia and New Zealand’s largest trading partner China also provided some encouragement. AUD/USD has returned to a 0.62 handle and is currently tucked within Friday's 0.6192-0.6238 range. If the upper end of this range is breached, the 50DMA kicks in at 0.6257. Similar price action for NZD/USD which is now on a 0.56 handle and stuck within Friday's 0.5585-0.5635 range. If the upper end of this range is breached, the 50DMA kicks in at 0.5653.

03 Mar 2025 - 10:20- ForexData- Source: Newsquawk