USD, EUR, and GBP React to Trade and Policy Shifts.

• USD: Dollar struggles near yearly lows due to Trump’s proposed tariffs on Canada, Mexico, and the EU, with economic data and Fed expectations shaping its outlook.
• EUR: Deutsche Bank shifts to a neutral stance on the euro, citing changing fiscal policies in Germany and geopolitical developments.
• GBP: The pound dips to 1.2650 amid risk-off sentiment driven by Trump’s tariff threats on the EU.
• Trade War Fears: Trump signals a 25% tariff on EU autos while delaying Canada/Mexico tariffs to April, fueling uncertainty in FX markets.
• Fed & ECB Watch: Markets closely monitor upcoming Fed speeches, PCE data, and potential ECB shifts in response to trade policies.

USD:
The US Dollar Index (DXY) is attempting a slight rebound but remains near its yearly low of $106.50, weighed down by concerns over potential 25% tariffs on Canada, Mexico, and the EU, as announced by President Trump. While the implementation has been postponed until April, lingering uncertainty continues to cap the dollar’s upside.

Today’s key economic data releases—Prelim GDP (Q4), Unemployment Claims, and Durable Goods Orders—could heavily influence the dollar’s trajectory. Markets are watching closely for signals on the strength of the US economy, particularly as Federal Reserve rate cut expectations grow.

Additionally, several FOMC members are scheduled to speak today, potentially offering insights into future monetary policy. Traders are also eyeing Friday’s PCE data, the Fed’s preferred inflation gauge, which could further shape rate expectations. For now, the dollar remains under pressure, with $106.168 acting as a key support level.

EUR:
Deutsche Bank has adjusted its stance on the euro, moving to a neutral position. The EUR/USD pair has slid from 1.09 to 1.0480 over the past year, but shifting political and fiscal dynamics could alter its course.

Key factors influencing this shift:

• Germany’s centrist parties are expected to approve a major new defense fund, bypassing the country’s debt brake.
• This signals a willingness to leverage Germany’s fiscal capacity.
• The move is also seen as a step toward stability in Ukraine.
• A more conservative fiscal approach in the US has contributed to lower Treasury yields.

Deutsche Bank views risks as balanced in the near term, with downside potential from trade policy disruptions and a dovish ECB but possible upside from proactive German fiscal measures and positive developments in Ukraine. However, they note that their stance could shift in the coming weeks depending on defense spending decisions.

As for a broader USD weakness, Deutsche Bank isn’t convinced yet but is monitoring Fed policy for signs of easing.

GBP:
The British Pound (GBP) has slipped toward 1.2650 against the US Dollar (USD) in European trading on Thursday, pressured by investor flight to safe-haven assets amid uncertainty surrounding Trump’s tariff plans. The US Dollar Index (DXY) has ticked higher to 106.70 as a result.

On Wednesday, President Trump hinted at upcoming tariffs on the Eurozone, stating, “Details on EU tariffs coming soon.” He suggested a 25% levy on autos and other goods, potentially escalating global trade tensions.

While tariffs on Canada and Mexico have been delayed until April 2, uncertainty remains high. Initially set for February 4, and later pushed to March 4, the tariff deadline was postponed again as both countries agreed to bolster border security to curb fentanyl trafficking and illegal immigration.

With growing trade war concerns, the pound remains vulnerable as markets assess potential economic fallout.