• USD: The dollar is rallying ahead of the U.S. tariff announcement, with further upside possible if tariffs are aggressive, though weak data could dampen gains.

• EUR: The euro remains resilient despite trade tensions, but high rate-cut expectations and soft CPI data could weigh on the currency.

• GBP: Barclays maintains a bullish outlook on GBP/EUR, citing UK resilience to tariffs and a slow BOE rate-cutting cycle.

• Tariff Impact: The FX market is still underpricing the impact of new U.S. tariffs, which could significantly affect EUR/GBP.

• Economic Data: U.S. job openings and manufacturing data today will influence market sentiment ahead of the tariff decision.

USD: Market Braces for Tariff Decision

The foreign exchange market reacted to renewed tariff threats at the start of the week, with the U.S. dollar strengthening across the board, the yen finding support, and risk-sensitive currencies coming under pressure. The Australian and New Zealand dollars were among the biggest losers, likely due to concerns over ongoing U.S. protectionist measures targeting China. The Reserve Bank of Australia held rates steady overnight, as expected, leading to an initial AUD rally, though gains have since faded.

Despite recent market moves, the dollar still has room to strengthen if tomorrow’s tariff announcement surprises on the hawkish side. However, weaker U.S. economic data could also put downward pressure on the greenback.

The U.S. macroeconomic calendar will be key for today’s FX movements. If data releases don’t provide surprises, the dollar’s tentative rebound may continue, especially as recent comments from U.S. officials suggest a tough tariff stance is likely. The DXY index could push past 104.50 ahead of tomorrow’s key announcement.

On the data front, JOLTS job openings for February are expected to decline to 7.6 million, while ISM manufacturing data for March is forecasted to slip below 50.0, reflecting deteriorating sentiment in the sector amid trade uncertainty.

EUR: CPI Could Keep ECB Dovish

EUR/USD briefly dipped below 1.080 before rebounding later in the session. Despite the EU being directly affected by the latest U.S. tariffs, the euro has remained relatively resilient compared to currencies more closely tied to China or Canada.

A Bloomberg report suggesting that more European Central Bank officials are open to pausing rate cuts in April may have provided support. The ECB likely aimed to counteract aggressive market expectations for easing, which had priced in over 20 basis points of cuts for the next meeting. However, the probability of a rate cut remains high at 74%.

Today’s flash CPI report for March will be closely watched. German inflation data hinted at a modestly dovish outlook, and core eurozone inflation is expected to edge down from 2.6% to 2.5%.

Heading into the tariff announcement, EUR/USD faces downside risks unless U.S. economic data unexpectedly weakens. A move toward 1.070-1.073 remains a possibility if the U.S. adopts an aggressive tariff strategy.

GBP: Barclays Remains Bullish on Sterling

Barclays maintains an optimistic outlook for the Pound-to-Euro exchange rate, projecting a rise well into the 1.20s due to the UK’s relative resilience to U.S. tariffs compared to the eurozone.

The bank argues that the UK’s economy is weathering the trade war better than its European counterparts. Despite Goldman Sachs recently lowering its GBP forecasts due to expectations of a Eurozone recovery, Barclays remains positive on Sterling.

Analysts caution that the impact of the new U.S. tariffs, set for announcement on April 2, is still not fully reflected in market pricing. According to Barclays, EUR/GBP could be affected by as much as 5%, with trade risks outweighing fiscal stimulus in Europe.

The UK economy has shown signs of stabilizing following a recent soft patch, while wage growth and services inflation remain elevated. The Bank of England’s cautious approach to rate cuts is expected to maintain a supportive yield advantage for the pound. Additionally, Barclays believes closer EU-UK ties under the Labour government could provide structural benefits to the UK economy over time.