Dollar starts week softer as tariffs weigh, yen rises

British Pound

Reuters: The pound headed for its worst weekly performance against the euro in over two years on Friday, as a boost to European spending drove a broad rally in the single currency, while against the dollar, sterling rose ahead of U.S. jobs data. The euro has surged across the board this week, logging its best weekly performance against the dollar since March 2009. Against the pound, it was set for a weekly gain of 1.5%, the most since January 2023. It was last up 0.4% at 84.03 pence. The pound was up 0.4% against the dollar at $1.292.

European leaders have rallied round Ukraine, with a view to reaching a peace deal, and pledged to spend more on their own defence in view of the shift in the U.S. stance under President Donald Trump. Spending of around $1 trillion, spurred by Germany's overhaul of its fiscal rules to release funds for infrastructure and defence, as well as European Union efforts to increase its joint borrowing, have transformed investor sentiment. Equity investors have poured money in at the fastest rate in almost a decade and the euro has soared in response, bringing gains versus the pound to 1.2% so far this year and to 1.1% against the dollar. Sterling by contrast is up just 0.4% against the U.S. currency.

The pound has drawn support from the expectation among traders that the Bank of England will have to cut rates more slowly than other central banks, including the Federal Reserve. Yet the focus for investors has shifted away from the interest-rate debate and towards the outlook for global capital flows. In particular, they are seeking alternatives to the United States, given a darkening economic outlook and high uncertainty over trade and fiscal policy. The mood around the pound is nervous.

On March 26, the Office for Budget Responsibility, the UK public finances watchdog, issues its own forecasts on the economy and borrowing. Sluggish economic growth and higher government borrowing costs have put finance minister Rachel Reeves under pressure to clarify how she intends to balance the books without breaking her own fiscal rules. "A light data calendar has seen the pound continue to trade in the shadow of the euro," analysts at Monex Europe said. "It is also not a constructive environment for sterling in our view, with growing noises around the difficult decisions facing UK Chancellor Rachel Reeves. We suspect this will become a major focus in the coming weeks, ahead of the March 26 economic update," they said.

US Dollar

Reuters: The dollar began Monday on a weak note after significant losses last week due to a potentially weakening U.S. labour market, while concerns over a global trade war led investors to safe havens, lifting the yen and the Swiss franc. Markets have been fixated on simmering trade tensions across the world as U.S. President Donald Trump slapped tariffs on top trading partners only to delay some of them for a month amid growing signs and fears of the U.S. economy slowing down.

That has led to investors losing faith in the U.S. economy which has been outperforming its peers. On currency futures markets, investors have slashed net long dollar positions to $15.3 billion from a nine-year high of $35.2 billion in late January. Risk-averse investors have sought the Japanese yen and Swiss franc instead sending both currencies to multi-month highs. On Monday, the yen was 0.5% firmer at 147.27 per dollar, just shy of the five-month high it touched on Friday.

The Swiss franc hit a three-month high of $0.87665 in early trading. The euro was 0.3% higher at $1.086725 after clocking its best weekly performance since 2009 last week boosted by Germany's game-changing fiscal reforms. That left the dollar index, which measures the U.S. currency against six others, at 103.59 on Monday, stuck near a four-month low touched last week. The dollar fell more than 3% last week against major rivals, clocking its weakest weekly performance since November 2022 as investors fret about tariffs and its impact on the economy.

Adding to investor jitters, Trump in a Fox News interview on Sunday declined to predict whether the U.S. could face a recession amid stock market concerns about his tariff actions on Mexico, Canada and China. "There is a period of transition, because what we're doing is very big. We're bringing wealth back to America," Trump told the "Sunday Morning Futures" programme. Tony Sycamore, market analyst at IG, said the comments are exactly the type of thing risk assets didn't want to hear after a tough three weeks. "Strap in tight – we have all the ingredients in place for another testing week ahead."

Investors were also digesting data from Friday that showed U.S. job growth picked up in February, but cracks are emerging in the once-resilient labour market amid a chaotic trade policy. Nonfarm payrolls increased by 151,000 jobs last month after rising by a downwardly revised 125,000 in January, the Labour Department's Bureau of Labour Statistics said. Economists polled by Reuters had forecast payrolls advancing by 160,000 jobs after a previously reported 143,000 gain in January.

Citi strategists said the data should keep the Federal Reserve comfortable staying on hold at this month's meeting, but details of the jobs report, including a rise in the unemployment rate and drop in participation, suggest the labour market could soften further this spring. "The slowdown in consumer spending, upcoming government job loss and decline in equity prices will likely have the Fed cutting policy rates again in May," they said in a note. Traders are pricing in 75 basis points of cuts from the Fed this year, LSEG data showed, with a rate cut fully priced in for June.

Fed Chair Jerome Powell said on Friday it remains to be seen if the Trump administration's tariff plans will prove to be inflationary, mapping out a checklist of things that could cause new import taxes to lead to more persistent price pressures. In other currencies, sterling rose 0.16% to $1.2941, while the Australian dollar was 0.14% higher at $0.6315. The New Zealand dollar last bought $0.57225.

South African Rand

Reuters: South Africa's rand fell on Friday after U.S. President Donald Trump said he would cut off all federal funding to the country, while the dollar sagged after data showed the U.S. economy created fewer jobs than expected last month. At 1519 GMT, the rand traded at 18.21 against the U.S. dollar, about 0.3% weaker than its previous close. It traded down about 1% earlier in the day. This fall ends four consecutive daily gains for the local unit, but the currency still managed to appreciate almost 3% against the greenback since last Friday's close as markets digested Trump's tariff policies.

The dollar last traded about 0.5% weaker against a basket of currencies after data showed the U.S. economy created fewer jobs than expected in February, bolstering bets the Federal Reserve will cut interest rates this year. Trump said in a post on Truth Social on Friday that the U.S. was stopping all federal funding to South Africa, adding that farmers seeking to flee South Africa over safety concerns will be invited into the U.S. with a rapid pathway to citizenship. "This negative sentiment surrounding South Africa and Trump's rhetoric continued to weigh on the rand," said Wichard Cilliers, head of market risk at TreasuryONE.

Trump was likely referencing his claims last month that "South Africa is confiscating land and treating certain classes of people very badly", alluding to a new law which aims to even out racial disparities in land ownership. His administration also signed an executive order to cut U.S. financial assistance to South Africa last month, citing disapproval of its land policy and of its genocide case at the International Court of Justice against Washington's ally Israel.

Like other risk-sensitive currencies, the rand often takes cues from global drivers like U.S. policy and economic data in addition to local factors. South Africa's net foreign reserves rose to $61.733 billion at the end of February from $61.328 billion in January, central bank data showed on Friday. On the Johannesburg Stock Exchange, the blue-chip Top-40 index closed up about 0.3%. South Africa's benchmark 2030 government bond was little changed, with the yield at 9.07%.

Global Markets

Reuters: Wall Street futures sank and the safe-haven yen and Swiss franc strengthened early on Monday as building deflationary pressures in China added to growth worries from a fading U.S. economy and an escalating global trade war. U.S. S&P 500 stock futures pointed 0.5% lower and Nasdaq futures sagged 0.6% as of 0137 GMT. Hong Kong's Hang Seng eased 0.1%, as did an index of mainland Chinese blue chips. Taiwan's equity benchmark slipped 0.4%, although Japan's Nikkei was 0.2% higher after flipping between small gains and losses.

The yen strengthened some 0.6% to 147.245 per dollar, while the franc rose 0.4% to 0.8773 per dollar. Data on Sunday showed China's consumer price index fell at the sharpest pace in 13 months in February, while producer price deflation extended to a 30th straight month. Beijing pledged more stimulus to boost consumption and foster innovation in artificial intelligence at the start of the week-long National People's Congress meetings that run until Tuesday. Elsewhere, U.S. President Donald Trump in a Fox News interview on Sunday declined to predict whether his tariffs on China, Canada and Mexico would result in a U.S. recession.

A run of soft U.S. economic data continued on Friday after monthly figures showed the labour market created fewer jobs than expected last month, in the first payrolls report capturing Trump's policies. "I think it's Trump's cavalier approach to economic policy that's rattling sentiment," said Kyle Rodda, senior financial markets analyst at Capital.com. "Unlike during his first administration, where signs of an economic slowdown or market correction would see a pivot on policy, he is genuinely focused on significant, structural change to the economy - even if it comes at the expense of short-term growth."

U.S. Treasury yields slid, with the 10-year yield dropping as much as 6 basis points to 4.257% and the two-year yield dipping 4.5 bps to 3.956%. The U.S. dollar index, which measures the currency against six major peers, eased 0.1% to 103.59. The euro gained 0.3% to $1.0866 and sterling rose 0.2% to $1.2946. In his latest warning to Canada, Trump said on Friday that reciprocal tariffs on dairy and lumber could be imminent. The U.S. president also said he is strongly considering sanctions on Russian banks and tariffs on Russian products to try and bring a speedy end to the war in Ukraine.

That has dragged on crude oil, with Brent down 0.4% at $70.11 a barrel on Monday and U.S. West Texas Intermediate crude down by a similar margin to $66.76 a barrel. Gold, another traditional haven asset, added 0.15% to $2,915 an ounce. Cryptocurrency bitcoin lost as much as 7.2% from Friday to reach the lowest this month at $80,085.42. Optimism about looser regulation and the creation of a cryptocurrency reserve under Trump lifted the token to an all-time high of $109,071.86 in January, but it has struggled since. The long-awaited executive order on creating the reserve came on Friday, but disappointed many investors by saying there would be no additional buying of bitcoin.

Read more here