Sterling regains footing against weak dollar, tumbles versus euro

British Pound

Reuters: Sterling rose against the dollar on Tuesday as fears of a U.S. recession drove traders away from the greenback, though the British currency was set for its seventh straight day of losses against the resurgent euro. The pound rose 0.4% to $1.2931, building on its 2.7% gain last week, as worries about a tariff-led slowdown in U.S. economic growth drive traders away from the greenback. Analysts said the move could continue in the coming days, though was unlikely to be sustained medium term.

Nick Rees, head of macro research at Monex Europe, said while U.S. recession fears were "overdone", currency markets "could be wrong for an extended period". He expects the pound to fall against the dollar, but potentially not for a couple of weeks. From the UK side, the week's focus will be on Britain's monthly gross domestic product due on Friday but until then analysts said the currency would largely be influenced by moves elsewhere. The pound lost ground on the euro, which rose as high as 84.445 pence, its highest since late January, before paring some of its gains. It was last up 0.1% at 84.235 pence.

Optimism that a deal could be reached on a German defence spending package has lifted the common European currency as eurozone growth prospects have brightened. The package, and reform of Germany's "debt brake" have also caused a sharp repricing of German government bonds, giving support to the euro. The spread between German and UK 10-year yields was 5 basis points narrower on Tuesday, and the two-year yield spread was 2 bps tighter. Both are around their narrowest since late 2024.

US Dollar

Reuters: The dollar languished near a five-month low versus major peers on Wednesday, as worries about the U.S. economy continued to simmer under President Donald Trump's unpredictable trade policies. The euro hovered close to a five-month peak on increased optimism for an end to the war in Ukraine. The Canadian dollar endured a volatile session overnight after Trump pledged to double tariffs on steel and aluminium to 50%, only to reverse course just hours later. The Bank of Canada decides policy on Wednesday, with traders fully expecting another quarter-point interest rate cut.

"Trade uncertainty persists and therefore so does market volatility," said Kyle Rodda, senior financial markets analyst at Capital.com. "The U.S. growth outlook continues to deteriorate," putting increased attention on the release of the consumer price index later in the day, "which could be a significant source of volatility", Rodda said. The U.S. dollar index, which measures the currency against a basket of six major peers, was flat at 103.47 in early Asian trade, following a 0.46% slide on Tuesday that took it as low as 103.21 for the first time since October 16.

A run of softer U.S. economic data continued on Tuesday with small-business confidence dropping for a third straight month in February. Investors have been on edge since Trump refrained from ruling out the possibility of a recession under his trade policies in a Sunday interview with Fox News. Wednesday's CPI report may be setting the market up for "a lose-lose situation", said Julien Lafargue, chief market strategist at Barclays Private Bank. "A higher-than-expected reading could fuel the stagflation narrative while a weaker-than-expected print could cement recession fears," Lafargue said. "What the market really needs at this point is better visibility on growth rather than on inflation."

The euro eased 0.05% to $1.0913, but remained not far from the previous session's peak of $1.0947, the highest level since October 11. Ukraine said on Tuesday it would accept a U.S. proposal for an immediate 30-day ceasefire in its conflict with Russia. Europe's single currency was already flying high on the promise of massive fiscal spending by Germany, although the situation has become more complex after the Greens vowed to block those plans and tabled rival proposals.

Sterling eased 0.11% to $1.2933, but that followed a 0.53% rally on Tuesday. The dollar gained 0.17% to 148.01 yen, after sinking to a five-month trough at 146.545 yen in the prior session. The greenback was steady at C$1.44325, after swinging between gains of 0.5% and losses of 0.4% on Tuesday. Cryptocurrency bitcoin was stable at $82,821 after bouncing from a four-month trough at $76,666.98 on Tuesday.

South African Rand

Reuters: South Africa's rand gained on Tuesday against a weaker dollar as investors awaited a delayed national budget and worried over a possible recession in the world's biggest economy. At 1422 GMT, the rand traded at 18.25 against the U.S. dollar, about 0.6% stronger than Monday's close. Domestic-focused investors will look to the local budget presentation on Wednesday after it was postponed last month over disagreements in the coalition government over increasing value added tax by two percentage points.

"One hopes that a compromise budget will be announced and passed, or South Africa's risk profile will take an even larger beating," ETM Analytics said in a research note. "Investors will have no choice but to position for a higher-risk environment ahead that will undermine the rand's performance," the note added. The greenback fell to its lowest level since October as markets roiled over U.S. recession fears. It last traded about 0.3% weaker against a basket of peers. Traders will also look to U.S. inflation data on Wednesday for hints into the Federal Reserve's policy path amid simmering trade tensions and slowdown fears in the U.S. economy.

"All indications are that the U.S. is about to enter a recessionary environment and the U.S. exceptionalism argument that has supported the dollar for so long is gradually evaporating," ETM Analytics said. On the Johannesburg Stock Exchange, the blue-chip Top-40 index last traded flat. South Africa's benchmark 2030 government bond was stronger, with the yield down 1.5 basis points to 9.035%.

Global Markets

Reuters: The euro was riding at five-month highs on Wednesday on Ukraine's readiness to accept a month-long ceasefire, while stocks whipsawed on back-and-forth U.S. tariff plans and concern about a U.S. economic slowdown. European equity futures jumped 0.8% and FTSE futures rose 0.3% after the U.S. said it would restore military aid and intelligence sharing to Ukraine after Kyiv said it would accept a U.S. ceasefire proposal. Russia is yet to respond. The euro hit its highest since October in New York trade at $1.0947 and was steady at $1.0913 in the Asia session. Russia's rouble rose to a seven-month high overnight.

MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.2% with markets in Hong Kong and China broadly steady and Japan's Nikkei holding its ground after slumping to a near six-month low a day earlier. On Wall Street overnight the S&P 500 flirted with notching a 10% fall from February's record closing high, and finished a volatile session about 0.8% lower. President Donald Trump threatened then backed down from a doubling of steel and aluminium tariffs on Canada to 50%, after Ontario suspended plans for a surcharge on exported electricity.

The dollar has sunk, Treasuries have rallied and lately stocks have suffered their heaviest selling in months as traders worry tariffs and policy uncertainty will hurt U.S. growth. "He's clearly trying to rebalance the economy back in favour of America," said Catriona Burns, lead portfolio manager of a global fund at Wilson Asset Management in Australia. "In this interim bit at the start, where he's going hard, it's a very dynamic environment to be operating in," she said. "The uncertainty that the tariffs and the back-and-forth on them is creating is hindering decision making so the effect that has in terms of a short-term pocket for the U.S. and an impact on growth there will be really interesting."

Travel stocks took a beating after Delta Air Lines cut its profit forecast in half and rivals United and American Airlines warned of deteriorating results, falling government bookings and uncertainty weighing on demand. Investors nervous about the economy also punished downbeat financial results from retailers, with Dick's Sporting Goods stock diving 5.7% on a dour outlook and Kohl's Corp shares plummeting 24% after reporting a drop in sales. Steel and aluminium tariffs take effect later in the day.

U.S. inflation data for February is also due, though it is likely to be too early to show much of a tariff hit. A central bank meeting in Canada will be closely watched to see what monetary policymakers on the front line of Trump's trade war are thinking. A seventh consecutive rate cut -- seen as only an even chance two weeks ago -- is priced in to the market. The Canadian dollar hit a one-week low overnight before recovering to C$1.443 per dollar. U.S. equity futures were broadly steady. The yen inched down from a five-month high to trade around 148 per dollar. The risk-sensitive Australian dollar was pinned just below 63 U.S. cents and Brent crude futures were held just under $70 a barrel.

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