Tariffs Remain in the Spotlight

Impact on GBP: Cable remains under pressure near $1.2350 as market sentiment turns cautious

GBP/USD remains under pressure this morning, trading in negative territory around $1.2350 as market sentiment turns cautious. Investor uncertainty has grown following US President Trump’s decision to impose a flat 25% tariff on steel and aluminum imports, limiting the pair’s ability to recover.

With uncertainty surrounding Trump's tariff plans, investors have adopted a cautious approach at the start of the week, preventing GBP/USD from staging a meaningful rebound. If safe-haven demand strengthens in the second half of the day, the pair could face renewed downside pressure.

Former UK MPC member Catherine Mann, known for her shift from an arch-hawk to an arch-dove, is speaking this morning. Markets will be watching closely for insights into her change in voting stance at last week’s BoE meeting. However, an interview with the Financial Times already sheds light on her concerns—weakening demand, declining corporate pricing power, and the risk of a sharp drop in employment.

If her remarks this morning reinforce these concerns, markets may adjust expectations for additional BoE rate cuts this year, with only 66bp factored into market forecasts.

No Major Data.

Speeches: 12.15 - BoE Gov Bailey

Impact on EUR: EUR/USD struggles to recover ahead of Powell's testimony

EUR/USD remains range-bound near $1.0300 after modest losses yesterday, struggling to gain momentum as investors await further details on US President Trump's reciprocal tariff plan and Fed Chair Powell's testimony.

Looking ahead, the Euro faces several headwinds. A robust Dollar, diverging monetary policies between the ECB and the Fed, and internal Eurozone challenges—such as Germany’s slowing economy—could all exert pressure on the currency. While short-term rebounds are possible, the broader outlook remains uncertain as global market dynamics continue to shift.

No Major Data.

Impact on USD: Rates, tariffs, and energy provide support

The DXY Dollar Index remains firm above 108.00 as markets closely monitor developments surrounding potential tariffs. Uncertainty persists over whether the "reciprocal" tariffs will target specific sectors such as autos, pharmaceuticals, and semiconductors or be applied more broadly. US President Donald Trump is expected to sign another round of executive orders today at 3pm, which could provide further clarity.

Energy prices have also contributed to the Dollar’s resilience. Meanwhile, natural gas prices continue to rise as Europe faces a cold snap and reduced Russian gas imports, supporting demand for the Dollar.

On the US economic front, it is a relatively quiet day, with small business optimism data expected to hold steady following the post-election surge last November. However, the key event will be Federal Reserve Chair Jerome Powell’s semi-annual monetary policy testimony to the Senate at 3pm. Powell is unlikely to adopt a more dovish stance at this stage, making his speech a neutral to slightly positive factor for the Dollar.

If Trump announces broader reciprocal tariffs today, the DXY could push toward the 109.00 level.

No Major Data

Speeches: 15.00 - Fed Chair Powell Testifies

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