FX Markets Steady After Turbulence: Can the Dollar Hold Its Ground?.

• USD Stability? Markets have priced in a 50bp lower Fed terminal rate, but Powell signals no rush to cut rates, with key job data and CPI in focus.
• Trade War Risks: China retaliates with tariffs on US agricultural goods, while US steel and aluminum tariffs take effect this week, keeping markets cautious.
• EUR Political Volatility: German CDU leader negotiates a €500bn infrastructure fund, with potential euro volatility depending on Green Party cooperation.
• GBP Holding Steady: Limited UK data this week; focus shifts to March 20 BoE meeting and March 26 Spring Statement, which could be a sterling risk.
• FX Outlook: EUR/USD may consolidate near 1.0770-1.0850, while GBP/USD faces resistance at 1.2925-1.3000; DXY dollar index stabilizes after last week’s swings.

USD: Has the Dollar Found Its Floor?

FX markets regain balance after a turbulent week
Currency markets are settling after an eventful period, with last week’s major moves in EUR/USD driven by falling US short-term rates. The market has already priced in a 50bp reduction in the Fed’s peak rate expectations within just a month, which could be enough for now unless upcoming US job market data surprises. Fed Chair Jay Powell, in a Friday speech, downplayed recent concerns, emphasizing that sentiment indicators alone don’t predict consumer spending. With February CPI due Wednesday and core inflation expected to remain sticky, Powell’s stance suggests the Fed isn’t rushing to cut rates—challenging market bets on a June rate cut.

Additionally, the US has now shifted to Daylight Savings Time, narrowing the time gap with Europe until March 30.

Trade war tensions and global focus shift
Beyond US data, markets are watching Ukraine peace talks in Saudi Arabia and ongoing trade disputes. Overnight, China implemented retaliatory tariffs on US agricultural goods, while new US tariffs on steel and aluminum imports take effect this Wednesday. The looming risk of broader US trade tariffs remains, as Washington aims to level trade imbalances while bolstering domestic revenue. Given last week’s Europe-centric focus, attention may now turn to USD/CNH movements, particularly whether China will tolerate further renminbi depreciation amid economic struggles. Despite uncertainty, USD/CNH may push above 7.30.

After a volatile week, the DXY dollar index may consolidate, though resistance at 104.30/50 could attract renewed selling if Europe’s outlook keeps improving.

EUR: Navigating the Political Landscape

EUR/USD is steady after last week’s 4.4% rally—the biggest since March 2020. FX volatility is rising as markets react to independent US and European developments. Political attention is on German CDU leader Friedrich Merz, who is negotiating with the Greens to push through a €500bn infrastructure fund. A lower house vote could take place on March 18, followed by the upper house on March 21. If the Greens show resistance, expect some euro volatility.

On the economic front, today’s Sentix Investor Confidence survey is the main European data point. With few other releases, ECB officials will dominate headlines. The market still expects 17bp of cuts in April, but we anticipate a pause, setting the stage for a hawkish vs. dovish media battle.

EUR/USD may consolidate around 1.0770-1.0850, with further upside needing either ECB support or geopolitical breakthroughs rather than US data alone.

GBP: A Quiet Week Ahead

GBP/USD has risen alongside broader European re-pricing but hasn’t significantly altered expectations for Bank of England rate cuts, which remain at 50-60bp this year. The next major UK events are the March 20 BoE meeting (no change expected) and the March 26 Spring Statement from Chancellor Rachel Reeves, which could weigh on sterling.

For now, EUR/GBP could trade in the 0.8350-0.8400 range, with risks balanced between European optimism and trade concerns. GBP/USD may find 1.2925-1.3000 difficult to breach in the near term.