The US Dollar experienced a decline on Tuesday, following negative sentiment from Monday amidst tariff announcements by the US. The US Dollar Index (DXY) fell below 106.00 as President Trump confirmed the implementation of tariffs on Canada, Mexico, and China.

In response, Canada announced retaliatory tariffs on US goods starting with a 25% levy on $30 billion worth of imports. China also stated it would impose 15% tariffs on key US agricultural products, effective March 10.

Us Economic Data Trends

Recent US economic data indicates potential slow to negative growth, with the TechnoMetrica Institute reporting the Economic Optimism Index fell to 49.8, below the estimated 53.1.

Federal Reserve officials are scheduled to speak on current economic conditions, while equities show a trend towards safe havens like Gold. The CME Fedwatch Tool indicates a 14.4% chance of interest rates remaining unchanged in June, as the US 10-year yield hovers around 4.11%.

Should the DXY support at 106.00 fail, potential levels to watch include 105.89 and 105.05. Resistance is identified at the 100-day Simple Moving Average (SMA) at 106.87, with further upside at 107.35 and 108.00.

This week’s decline in the US Dollar came after hostile trading sentiment on Monday, underscored by tariff announcements affecting key trade relationships. With Washington affirming these measures against three major economies, it was unsurprising to see a reactionary slump in the Dollar Index below 106.00. The response from Ottawa and Beijing only reinforced the challenging environment for international trade, with both governments rolling out their plans for countermeasures.

The most immediate retaliation came from Canada, which opted for a 25% duty on $30 billion of US imports. Meanwhile, China targeted American agricultural exports, applying a 15% tariff due to take effect from 10th March. This move from Beijing will weigh heavily on sectors reliant on cross-border trade, something that market participants should follow closely.

The latest batch of US economic data continues to paint a picture of reduced momentum, with the Economic Optimism Index sliding below expectations to 49.8. With forecasts placed at 53.1, the underperformance adds to fears that the world’s largest economy may continue decelerating.

Federal Reserve officials are now set to present their perspectives on current financial conditions, which could be instrumental in shaping near-term expectations. Meanwhile, capital flows indicate a shift towards safer assets, with gold absorbing increased demand. Bond markets tell a similar story, with the 10-year Treasury yield stabilising near 4.11%. However, rate expectations remain uncertain, with the CME FedWatch Tool indicating only a 14.4% likelihood of holding rates steady in June.

Key Technical Levels

Technically, Dollar Index traders should note the 106.00 level as the nearest support. Any break lower could lead to tests at 105.89, possibly extending further towards 105.05. On the other hand, upside resistance is located near the 100-day Simple Moving Average at 106.87, with additional hurdles at 107.35 and 108.00.

As the trading week unfolds, we will be monitoring how market sentiment shifts in response to further developments, particularly any statements from policymakers that could influence positioning in the derivatives space.

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The Pound Sterling (GBP) has seen a slight increase against the US Dollar (USD), trading at 1.2708, as US tariffs on imports from Mexico, Canada, and China negatively impact the USD. The US Dollar Index (DXY) has reached a three-month low of 105.87 amid concerns over the economic outlook, though it has recovered slightly to 106.20.

In the UK, the British Retail Consortium reported a 0.7% drop in the shop price index year-on-year, while month-on-month prices rose by 0.4%. A nearly 7% increase in the minimum wage could pressure inflation as the Bank of England considers rate cuts.

Uk Inflation Trends

Earlier this year, the UK’s Consumer Price Index rose to 3%, the highest in ten months. Meanwhile, market participants are closely monitoring US President Trump and upcoming speeches from Federal Reserve officials. The GBP/USD pair reached a year-to-date high of 1.2753 before retreating, indicating weak buying momentum.

The modest rise in Sterling against the Dollar reflects a fragile shift in sentiment as traders digest tariff-related pressures on the greenback. With the Dollar Index slipping to a three-month low, the market appears increasingly wary of how protectionist policies will shape economic performance. While a slight recovery in the DXY reduces some of this concern, the broader implications for USD demand remain.

Domestically, UK retail price data reveals a nuanced inflation picture. A monthly rise in shop prices suggests lingering cost pressures, yet the annual decline indicates easing inflation over time. The recent increase in the minimum wage could introduce further upward pressure on prices, prompting careful consideration from the Bank of England. If policymakers see wage growth fuelling inflation, any anticipated rate cuts may be delayed or scaled back.

With the UK’s inflation gauge recently reaching a ten-month peak, the timing of monetary policy adjustments grows more delicate. The impact of this on rate expectations may deter sustained buying momentum in the currency market, as reflected in the Pound’s pullback from its recent high.

Federal Reserve Signals

In the US, market focus remains on leadership rhetoric and economic indicators. Traders will closely scrutinise upcoming Federal Reserve commentary for hints on rate policy adjustments. Considering the Dollar’s recent movements, deviations from current policy expectations could influence short-term positioning.

For traders navigating these developments, the response to inflation signals, monetary policy expectations, and tariff measures will shape price action. Recent price movement in GBP/USD suggests that bullish conviction lacks follow-through, which may warrant caution in leaning too heavily on upside extensions unless upcoming data strengthens the case.

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Market activity indicates a possible easing in the trade tensions, although no specific news supports this. The Nasdaq Composite has fluctuated, currently showing a decrease of 0.2%.

US 10-year Treasury yields have increased by 1.3 basis points, reaching 4.19% after a low of 4.10%. Meanwhile, WTI crude oil has reduced its losses, now trading down by just 18 cents.

Market Uncertainty And Nasdaq Movement

This suggests that while tensions in global trade may be lessening, there has been no clear announcement or development to confirm a shift. The move in the Nasdaq Composite reflects this uncertainty, as its slight drop of 0.2% indicates a lack of full confidence among traders.

Meanwhile, movements in US 10-year Treasury yields show a mild rebound after touching lower levels. The increase to 4.19% from 4.10% suggests that investors may be adjusting their expectations regarding interest rates or economic stability. A rise in yields often signals reduced demand for government debt, which can be tied to shifting sentiment in financial markets.

Oil prices have also shown some resilience. WTI crude was down more earlier but has pared some of those losses, with only 18 cents separating it from previous levels. This suggests that selling pressure has weakened, though market participants appear to remain cautious about future price movements.

For those navigating these shifts, separating short-term reactions from broader trends is necessary. The modest moves across equities, bonds, and commodities imply that traders are reassessing risks rather than reacting to any major shift in fundamentals. The recovery in bond yields, for example, may indicate that recent concerns were overstated. Likewise, the steadier performance in oil could point to buyers stepping in at lower prices.

Monitoring Future Market Trends

If these patterns continue, it would be wise to monitor whether the rebound in yields accelerates, as this could affect liquidity across multiple asset classes. The same applies to equity movements—should the Nasdaq Composite remain under pressure, it might suggest that optimism around easing trade tensions lacks substance. Oil’s response will also matter, since crude prices influence inflation expectations and monetary policy discussions.

Ultimately, the way markets behave in the coming sessions will offer better insights into whether this is a temporary adjustment or the start of a more persistent trend.

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Pound Sterling (GBP) is showing moderate strength, primarily due to a broader weakness of the US dollar rather than any fresh developments domestically. GBP has risen through the low 1.27s, reaching its highest level since early December.

This upward trend indicates growing momentum, with expectations of movement towards 1.28, which aligns with the 200-day moving average at 1.2786. Established support levels are noted at 1.2715 and 1.2675/80.

Recent Performance Of Pound Sterling

The recent performance of Pound Sterling suggests that its appreciation is largely a function of external conditions rather than internal drivers. The US dollar’s weakness has provided a boost, allowing GBP to climb beyond the low 1.27s and touch levels last seen in early December. As it stands, momentum appears to be favouring further gains.

Now, with a move toward 1.28 looking increasingly probable, it’s worth paying attention to the 200-day moving average at 1.2786. Historically, this technical level has acted as both support and resistance depending on broader market conditions. If prices manage to sustain themselves above this threshold, it could reinforce the broader recovery. However, traders should remain aware of key support levels at 1.2715 and 1.2675/80—should price action reverse, these levels could become relevant once again.

Given these dynamics, near-term trading strategies may focus on whether the current momentum has enough continuation to surpass 1.28 cleanly. If it does, there would be scope for further gains, but failure to hold above could indicate some consolidation or a minor retracement. The role of external macroeconomic factors should not be underestimated here, particularly as the dollar’s next moves could influence whether this rally extends or fades.

Tracking External Macroeconomic Factors

For those in derivative markets, it would be logical to track upcoming data releases that could sway currency sentiment, particularly from the US. If risk sentiment continues to favour cyclical assets or if Federal Reserve expectations remain relatively dovish, the dollar could stay under pressure, providing room for further sterling strength. Conversely, any recovery in the greenback might present a test for support levels mentioned earlier.

Technical indicators should also be monitored alongside macro developments. While the trend currently supports further upside, reaction around the moving average and any shifts in momentum could determine the next phase.

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Ted Cruz expressed his hope that tariffs will not remain in place for a long time. He emphasised that Texas engages in extensive trade with Mexico and Canada, wishing these tariffs encourage positive outcomes, as intended by President Trump.

This sentiment is echoed by Senate majority leader John Thune, though it is unclear if Cruz is addressing Trump directly or offering advice.

Cruz, who was born in Canada, has previously indicated he was unaware of his Canadian citizenship.

Concerns About Economic Disruptions

Cruz’s remarks highlight a concern about the duration of these tariffs and their broader effects on trade relationships. His words suggest that while he acknowledges the reasoning behind them, he is also wary of any long-term economic disruptions they may cause. Texas, with its strong commercial connections to Mexico and Canada, would undoubtedly feel any extended constraints on trade.

Thune appears to share this concern, reinforcing the idea that there is some hesitancy within their party regarding the trajectory of these policies. However, it is not entirely clear whether Cruz’s statement is meant as direct counsel to the White House or if he is merely expressing a hope that the expected benefits materialise quickly.

This discussion emerges as markets respond to recent policy shifts. Trade restrictions often create uncertainty, and that uncertainty tends to translate into fluctuations in pricing. Indicators have already shown movement, which suggests that traders are weighing the probability of further policy adjustments. If there is any indication that these measures will persist longer than expected, market reactions are likely to accelerate.

Market Reactions And Policy Expectations

We have seen how sudden changes in trade policy can disrupt expectations, particularly in industries that rely on cross-border supply chains. Pricing strategies must take into account both immediate reactions and the potential for longer-term adjustments. If further statements from policymakers suggest that these tariffs will not be short-lived, traders will likely need to reassess their positions accordingly.

Historical patterns suggest that markets may attempt to factor in possible shifts before they are formally announced. The existing remarks from policymakers indicate a degree of caution about long-term restrictions, but without direct assurances. As a result, price movements in related sectors may continue to reflect this uncertainty.

Any upcoming policy adjustments or statements from officials will likely shift expectations further. Market participants will be closely analysing whether there is any indication of compromise or whether these measures are expected to be more permanent than initially assumed. With concerns raised over trade volumes, we may see shifts in sector-specific expectations, particularly among those that depend on predictable cost structures.

Timing and positioning in response to these developments become ever more essential. Reactions will largely depend on clarity around future policy direction. If continuing discussions suggest a more extended application of these tariffs, further volatility should not be unexpected. The next several weeks may be telling.

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The EUR is gaining due to a weaker USD and expectations of increased European government spending. The currency has remained below its short-term fair value of 1.0845 amid narrowing rate differentials between the eurozone and the US.

Recent spot gains above 1.0530 indicate bullish momentum. If these gains persist through the close, the EUR could advance towards the 1.0650/1.0750 range, with the 200-day moving average at 1.0722 serving as a target.

Impact Of US Dollar Weakness

These movements in the currency markets are not happening in isolation. The US dollar has been losing ground largely because traders expect the Federal Reserve to maintain or even ease policy rather than tightening further. Meanwhile, speculation about increased European government spending is giving the euro support, as fiscal expansion could help growth and inflation prospects in the region.

Despite the euro’s appreciation, it remains below what we estimate as its short-term fair value of 1.0845. This level is derived from a combination of factors, including interest rate differentials, investor positioning, and macroeconomic indicators. The narrowing gap between yields in the eurozone and the US has contributed to this steadiness, preventing either currency from pulling sharply away from the other.

The fact that spot prices have climbed above 1.0530 suggests that momentum is in favour of further gains. This threshold had previously served as a barrier, limiting upside movement, but now that it has been cleared, traders are watching closely to see if the market can sustain levels above it. If the euro remains elevated through the daily close, we could see a push higher towards the range of 1.0650 to 1.0750.

A key reference point would be the 200-day moving average, which currently stands at 1.0722. This is frequently monitored by market participants as a measure of long-term directional bias. If prices can break and hold above this level, it would reinforce the bullish case and potentially encourage more positioning in favour of the euro.

Policy Outlook Considerations

As these trends unfold, monitoring how the Federal Reserve and the European Central Bank communicate their policy outlooks will be essential. Any signs that US policymakers might hold rates steady for longer than expected could slow down the dollar’s decline. Similarly, discussions about fiscal policies in Europe could influence whether the euro sustains its upward movement. These factors create a dynamic environment where price levels and momentum patterns play a decisive role in positioning strategies.

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The Canadian Dollar (CAD) is performing well today, recovering from a decline caused by recent tariff news and trading in the low 1.44 range. The softer US Dollar (USD) is supporting this recovery, coupled with a decrease in short-term volatility.

Recent weeks have seen the CAD incorporate tariff risks, though the current price action suggests scepticism towards the longevity of 25% tariffs. Meanwhile, US/Canada 2Y spreads have narrowed by approximately 20 basis points, providing some support to the CAD amid tariff concerns.

Cad Upside Potential

Currently, CAD upside potential is confined to the 1.4350/1.44 range. USD support levels are at 1.4370 and 1.4344, while resistance is at 1.4550 and 1.48. Spot losses below these supports may indicate a move towards the mid-1.42s.

The Canadian Dollar appears to have steadied, having absorbed the concerns around tariffs over the past few weeks. Markets seem hesitant to fully price in long-term economic effects from the 25% tariff discussion, which has kept the currency from weakening further. With the USD itself losing momentum, the balance seems to favour a measured CAD recovery rather than a sharp move in either direction.

From a rate differential perspective, the compression of US-Canada two-year spreads by around 20 basis points seemingly adds a degree of support. However, this movement alone is unlikely to drive sustained CAD strength unless further developments reinforce the shift. We note that lower volatility is playing a role in the currency pair’s relatively contained movement, suggesting a more orderly trading range rather than erratic price action.

Key Technical Levels

Current technical levels frame the near-term potential. As it stands, gains for the CAD seem restricted within the 1.4350 to 1.44 corridor. Should the USD side weaken further, the next inflection points sit at 1.4370 and 1.4344, both acting as interim supports. A breach below these could pave the way toward the mid-1.42s, though traders may require additional conviction from economic data or policy signals before committing to this trajectory.

On the other hand, upward pressure on USD would likely encounter barriers at 1.4550 and further at 1.48. Should momentum shift in that direction, it would suggest a reassessment of the tariff narrative or broader USD strength resurfacing. For now, with spreads where they are and volatility contained, attention remains on whether external forces—such as Federal Reserve guidance or trade developments—adjust the prevailing range.

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Mexico has stated that it will delay the announcement of retaliatory tariffs until Sunday. This date coincides with the announcement of the new leader of the Liberal Party in Canada, likely to be Mark Carney.

Carney is expected to call an immediate election, which may occur between April 14 and May 26. If tariffs are not reduced, they could overshadow the election that initially seemed favourable for Conservative leader Pierre Poilievre, who has declined in polls due to concerns about his similarities to Trump.

Canadian Public Opinion Shifts

An Angus Reid poll indicates a shift in Canadian public opinion. Market reactions may reflect optimism if tariffs are adjusted, but a lack of reversal could lead to challenges next Monday.

Mexico’s decision to hold off on announcing retaliatory measures until the end of the weekend aligns with a key political event in Canada. The timing suggests that officials in Mexico City are aware of the potential effect on Ottawa’s decision-making. Once the new leader of the Liberal Party is confirmed, the response from the Canadian government could influence market sentiment before trading resumes next week.

Carney, expected to win the party leadership, is widely believed to be preparing for a swift general election. Holding the vote as early as mid-April or as late as the final week of May would give him time to frame the economic discussion around trade disputes. Meanwhile, Poilievre, who previously benefited from voter discontent with the Liberals, has lost momentum. The perception that his positions align too closely with those of Trump has weakened his standing in recent surveys. If that trend continues, the coming weeks could reshape expectations for Canada’s political direction and trade policies.

Market Sentiment And Trade Policy

Public opinion in Canada is showing signs of movement. The latest polling from Angus Reid suggests that sentiment has shifted, although how this translates into government action remains uncertain. Changes to trade policy—if they come—may ease concerns and spark optimism in markets. Without reductions in tariffs, however, traders must prepare for increased difficulty as early as Monday. Given the close link between political events and financial reactions, positioning ahead of the coming week requires caution.

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President Trump has stated that tariffs on Canada, Mexico, and China would start today, asserting that manufacturers must build their car plants in the US to avoid such charges. This announcement follows comments suggesting potential changes to the tariffs by Commerce Secretary Lutnick.

Concerns over the impact of these tariffs are growing, with indications that they could harm economic growth, particularly in the US and its neighbours. Recent data showed a slowdown in manufacturing activity, increasing prices, and a dip in employment, reflecting the challenges posed by tariff uncertainties.

Us Dollar Performance

The USD has weakened overall, with the DXY index showing a correlation with its performance during Trump’s first term. There are no significant data releases expected in North America today, while other global markets react to ongoing trade challenges.

Trump’s push to have manufacturing brought back domestically has now moved from rhetoric to policy, with tariffs on several key trading partners taking effect. The reasoning is plain: build within the country or pay to bring goods in. It’s a message aimed at manufacturers, but the broader market is reacting as well.

Lutnick’s earlier remarks hinted that there might be adjustments to these tariffs, yet it appears the position has been firmed up instead. Investors watching for flexibility will need to reconsider their expectations. The most immediate effects are already being seen in economic indicators, where manufacturing growth has slowed, costs have risen, and job numbers have softened. These are not isolated occurrences but rather a reflection of the uncertainty stirred up by trade policies.

In currency markets, the dollar’s weakening is notable. The DXY index is behaving in a way that aligns with its movements during the early years of Trump’s first term. This correlation is important for traders looking ahead, as it suggests historical patterns may offer guidance on what comes next.

Market Reactions

No market-moving economic data is scheduled out of North America today, leaving traders to take their cues from external developments. With other economies adjusting to these trade changes, global reactions will dictate short-term sentiment. Those involved in derivatives should keep a close watch on shifting momentum, as these policies continue to shape pricing beyond immediate headlines.

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Trudeau has announced retaliatory tariffs amounting to $30 billion, with an additional $125 billion planned within 21 days. Canada will also file challenges under the USMCA and WTO, while discussions about non-tariff measures are ongoing with provinces.

He emphasised that Canada does not desire a trade war, arguing that the US government risks American jobs and sabotages its own agenda. Trudeau claimed that the legal basis for tariffs concerning fentanyl is inaccurate, as less than 1% of fentanyl and illegal immigration originates from Canada.

Canada’s Fentanyl Commitment

Statistics indicate a 97% drop in fentanyl flows from December to January, affirming that Canada has met its commitments. Trudeau expressed the challenges Canadians will face, promising additional support and maintaining that these tariffs should be temporary.

The announcement highlights a direct response to the measures imposed by the U.S. administration, showcasing that Ottawa is not retreating from economic confrontation. The scale of the planned countermeasures should not be underestimated. An initial $30 billion tariff package is already set, with a much larger wave—an additional $125 billion—expected within three weeks. These actions are not taken in isolation; legal avenues through the USMCA and WTO will also be pursued. Provincial governments are engaged in discussions regarding alternative methods that do not rely on direct tariffs.

Trudeau has made clear that Canada is not seeking economic conflict. Instead, he frames these tariffs as a necessity, arguing that the White House is ultimately undermining its own labour force and economic priorities. His remarks directly challenge the justification provided by Washington, particularly the claim that fentanyl and migration concerns warrant such measures. He presents data to discredit the reasoning behind the U.S. decision, pointing to a 97% reduction in fentanyl flows from December to January.

This shift in numbers is not insignificant. From a trading perspective, this suggests that Canada has fulfilled its pledged commitments on border controls. If these figures hold under further scrutiny, the narrative from the United States appears weaker when backed by empirical evidence. In response, assurances have been made that domestic support will be provided to those affected, reinforcing that these measures should not be treated as permanent.

Economic Adjustments And Market Reactions

For those closely monitoring price movements in the coming weeks, the immediate focus should be on reactions from Washington. There is no ambiguity in the scale of the measures, meaning response strategies will be developed swiftly. The timeline for the next wave of tariffs is clear, which provides some predictability in an otherwise volatile situation. The legal disputes under the stated agreements introduce potential delays, though market participants should not expect resolution through litigation alone.

This is not a theoretical confrontation; practical effects are already emerging. Importers and exporters will make adjustments, adding pressure on policymakers and industries alike. The determination to establish economic leverage on both sides is evident. The stated intention to limit the duration of these tariffs suggests that outcomes in negotiations could shift the timeframe, but that remains dependent on the ability of either side to recalibrate its stance based on economic repercussions.

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