USD Pressured by Economic Concerns and Tariffs, EUR/GBP Gains Amid EU Defence Plans, GBP Strengthens on BoE Outlook.

• USD: USD pressured as Trump warns of slowdown, Fed stays cautious, and weak jobs data fuels rate cut bets.
• EUR: EUR/GBP climbs as EU eyes joint defence funding, Germany eases debt rules, and Italy proposes €200B investment plan.
• GBP: GBP holds gains as BoE policy outlook remains tight, UK data awaited, and USD stays weak ahead of CPI release.

U.S. Dollar: Investor concerns grow after President Trump hints at a potential economic slowdown, calling it a “transition period.” However, Fed Chair Jerome Powell and San Francisco Fed President Mary Daly see no immediate need for policy changes despite rising uncertainties. With the Fed in a blackout period before its March 19 meeting, markets now focus on February’s CPI data on Wednesday for inflation insights. New US steel and aluminium tariffs add pressure to the dollar, while traders now expect 75 bps in Fed rate cuts this year, starting in June. Weaker job data fuels concerns, with February payrolls missing forecasts at 151K and January figures revised lower, raising labour market worries.

Euro: EUR/GBP continues its upward trend, trading around 0.8440, as the EU explores joint borrowing to boost defence spending. Germany’s Green Party signals willingness to negotiate on defence funding, while German leaders have agreed to relax the “debt brake” and set up a €500 billion infrastructure fund. Meanwhile, Italy proposes a European guarantee scheme to unlock €200 billion for defence and aerospace investments. Markets await further developments, with key EU decisions expected by June.

GBP: GBP strengthens as traders bet on prolonged BoE policy tightness, driven by strong UK wage growth fuelling inflation. While Governor Andrew Bailey and other officials support a gradual easing approach, Catherine Mann argues for a faster policy shift amid global volatility. Markets now await UK GDP and factory data on Friday, with growth expected at 0.1% for January, down from 0.4% in December. The GBP consolidates after a month-long rally, trading around 1.2900 against the USD. The US Dollar Index remains weak near a four-month low of 103.45, with traders awaiting US CPI data on Wednesday for further direction.

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