Euro Sees Unexpected Strength
Impact on GBP: BoE hawks, doves, and moderates speak today
At 14:30 GMT today, Bank of England MPC members Andrew Bailey, Huw Pill, Megan Greene, and Alan Taylor will testify before the Treasury Select Committee regarding February’s 25bp rate cut. This comes as markets are pricing in just 57bp of BoE cuts for the year, compared to 72–73bp of easing expected from the Federal Reserve. While most still anticipate three BoE rate cuts in 2025, recent commentary from dovish members like Dave Ramsden has emphasized caution and the need for a gradual approach, with persistent private-sector wage growth remaining a key concern.
Aside from external member Alan Taylor's notably dovish stance, a significant dovish surprise seems unlikely today. GBP/USD is hovering near resistance at $1.2810, and a break above this level could trigger another leg higher in the rally.
No Major Data.
Impact on EUR: A voluntary fiscal coalition
EUR/USD has broken decisively higher on expectations of major European fiscal stimulus, with Germany moving particularly fast. The focus now shifts to whether these measures pass smoothly through parliament. European bond markets are already reacting, with the German 2–10-year yield curve steepening another 4bp yesterday.
In FX, looser fiscal and tighter monetary policy typically support a currency. However, the fiscal news hasn’t shifted ECB expectations, with the forward ESTR curve still pricing a 1.75% low point for the easing cycle—likely due to the looming global tariff threat.
Most hadn’t anticipated such a sharp EUR/USD breakout and don’t see this as a sign of the Dollar losing reserve status. Instead, it looks like a cyclical move on weaker US data. Near-term, US activity data will determine whether EUR/USD tests $1.0670/80 today or even $1.0800 if Friday’s payrolls disappoint.
For the multi-month view, most?prior $1.0000/1.0200 forecasts for Q2/Q3 look harder to achieve, with EUR/USD now more likely in the $1.0300/$1.0400 range when broader US tariffs hit next month.
?No Major?Data.
Impact on USD: Borderline untradable
The DXY trade-weighted Dollar index fell below 106 yesterday as European currencies rallied on hopes of major fiscal stimulus. Critics argue European leaders only act in a crisis— and the potential US withdrawal of its security umbrella is certainly one. Two key drivers were: (a) the European Commission triggering escape clauses from the Stability and Growth Pact, potentially unlocking EUR800bn in measures, and (b) Germany suspending its debt brake to launch a EUR500bn infrastructure fund.
More focus is expected at today’s European Council meeting. This comes as US tariffs drag global equities 2–3% lower, push two-year Treasury yields below 4.00%, and weaken the Dollar. In his State of the Union, President Trump warned tariffs would cause a “little disturbance”—one already pressuring US activity, with the Fed’s terminal rate repriced to 3.50% from 3.75% in four weeks.
Uncertainty around tariffs hasn’t helped. USD/CAD briefly topped C$1.4500 on a US-Canada trade spat before US Commerce Secretary Howard Lutnick suggested a possible relief pathway. Still, given the administration’s reliance on tariff revenues, reversals may be slow, and broader tariffs are likely in April.
For the Dollar, weaker US data could keep it under pressure in March, while tariffs may take centre stage in April. This week’s focus is Friday’s jobs report, with today’s ADP and ISM Services data also in view. DXY looks vulnerable to 105.10/40, with a deeper move toward 104.00 likely only if NFPs disappoint significantly.
Major Data:
13:15 -?ADP Non-Farm Employment Change
15:00 -?ISM Services PMI
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