Bannockburn Capital Markets | Tariff Decision Day?

The US dollar is trading mostly firmer but quietly in what could be a volatile North American session. It is not just about the US data, of which there is plenty—including the PCE deflator and the first look at Q4 GDP, the preliminary February PMI and the University of Michigan’s final February reading on consumer confidence. The Supreme Court will hand down some decisions today and it possible that rules on the president’s use of emergency powers to impose widespread tariffs. The event markets suggest a strong majority expect the high court to rule against most of all of the tariffs that have justified by the International Economic Emergency Powers Act (IEEPA). Tensions between the US and Iran remain elevated but the threat of an imminent strike has relaxed a little and oil prices are a little softer ahead of the weekend.

The dollar has risen against the G10 currencies this week. The yen has been the weakest, and it is off almost 1.65%. The Australian dollar has been the best performer, and it is off about 0.3% this week. Most emerging market currencies also declined this week. The Argentine peso (~0.6%), the Russian ruble (~0.2%), and the Brazilian real (0.15%) have been the best performer.

Prices

G10

• The euro was sold to almost $1.1740 in North America yesterday, a four-week low. It has held barely above it today. After the low was recorded, the euro was unable to resurface above $1.1780, around Wednesday’s low, and this is also holding. Options for one billion euros at $1.1775 expire today. The next area of chart support is in the $1.1670-$1.1700 area. The euro settled slightly below $1.1870 at the end of last week.

• The dollar reached a seven-session high against the Japanese yen today near JPY155.65 in late Asia/early European turnover. It has come off to around JPY155.15 in the European morning. The session low was near JPY154.90. Still, the dollar’s technical tone is constructive, and overcoming the JPY155.65-80 area could target the JPY156.50-65 area next.

• Sterling was sold to a four-week low yesterday near $1.3435. While fraying the 200-day moving average (~$1.3445), sterling met the (50%) retracement of its 8.5-cent rally from early last November’s low (~$1.3010) to the late January high (~$1.3865). Despite the strong retail sales and firm PMI, it has barely benefited. Cable has held below $1.3485. It must resurface above $1.3510 to improve the technical tone. The next area of support is seen around $1.3400 and then $1.3340-50. Sterling’s roughly 1.3% loss this week, if sustained today, would be the largest since January 2025.

• The US dollar traded at its best level against the Canadian dollar in nearly two weeks shortly after Canada reported a smaller than expected December merchandise trade deficit and the US reported a somewhat larger deficit. Still, excluding the pandemic distortion Canada’s trade shortfall (~C$313 bln) was a record. Overall exports fell by 0.2%, led by a 5.8% drop in exports to the US. The greenback reached CAD1.3715 and remained above about CAD1.3680 for the remainder of the session. That range is largely holding today, but the Canadian dollar still looks vulnerable.

• A hawkish leaning central bank and labor market data helped the Australian dollar minimize its losses against the firmer US dollar. With about a 0.35% decline this week, it is the best performing G10 currency against the dollar. It kissed the 20-day moving average ($0.7025) yesterday for the first time in a month. It extended the losses to $0.7015 today before it recovered to a little above $0.7065. The momentum indicators are turning lower waring of continued near-term consolidation. A break of the $0.6990-$0.7000 would suggest an outright correction is at hand.

EM

• After setting a new low against the Mexican peso since mid-2024 on Wednesday near MXN17.0865, the greenback has recovered. It poked above MXN17.30 yesterday for the first time in almost two weeks and settled above the 20-day moving average (~MXN17.26). It is consolidating quietly ahead of the North American session. Most of Latam currencies fell this week, with the Argentine peso a notable exception. The month’s high was recorded on February 2 (~MXN17.5725).

• The dollar forged a base against the offshore yuan ahead of CNH6.88 in the first few days of the week. It approached Monday’s high yesterday as it traded near CNH6.9055. The greenback is in an exceptionally narrow range today, ~CNH6.8975-CNH6.9045. It was trading around CNH6.90 when the mainland markets shut for the extended holiday.

• After yesterday’s holiday, the Indian rupee was sold to a new low for the month, and the central bank reportedly intervened in both the onshore and offshore markets. The dollar opened well above the recent highs and rose to INR90.9925, its best level since February 2. The rise in oil prices weighed on the local bond market as well as the currency.

Other Markets

• Equities are mixed today. In the Asia Pacific region, while Tokyo lost over 1%, the surge in South Korea’s Kospi continued. It rose 2.3% today to bring this week’s advance to 9.5%. Hong Kong and mainland shares that trade there fell by 1.10%-1.20%. Europe’s Stoxx 600 is firm, recovering about half of yesterday’s 0.55% loss. US index futures are narrowly mixed.

• Benchmark 10-year yields are mostly lower. The soft national CPI saw JGBs extend their rally. The yield has fallen for four consecutive weeks. It is off 10 bp this week, the most since April 2025. European yields are mostly lower, led by the two-basis point decline in UK Gilts. The 10-year US Treasury yield is flat, near 4.07%. It is up about two basis points ahead of US data.

• Gold rose to a new high for the week near $5042.50, which is slightly above last week’s settlement. It is near $5027 in late European morning turnover. The same is true of silver. It reached a new high for the week, near $81.20, and is around $80.50.

• April WTI edged higher initially, extending yesterday’s gain, and poked briefly above $67, where sellers emerged and pushed it back to around $66. It settled at $62.75 last week. Many are trying to game out the timing of attack scenarios, trying to take into account the lunar phase for ambient light, the Ramadan holiday (extends to March 19/20), and the like.

Data

• There are four highlights for the US today. The first estimate for Q4 GDP is due and the median forecast in Bloomberg’s survey has crept up to 3% at an annualized rate. The price deflators are expected to have softened. The December personal income and consumption data are due with the deflators, which are expected to have held steady or ticked up slightly. The preliminary February PMI is due, and the composite looks little changed around 53.0. The last highlight but it could be the most market impactful is the Supreme Court’s decision day. It does not pre-announce which cases it will rule on, but there is a chance that the verdict about the president’s use of emergency powers to levy widespread tariffs will be handed down.

• Canada reports December retail sales. The headline was likely dragged down by weaker vehicle sales.

• Mexico also reports December retail sales. After a 1.0% jump in November, sales likely slipped a little at the end of the year.

• The preliminary February eurozone PMI improved. The manufacturing PMI rose from 49.5 to 50.8, its highest reading since June 2022. New orders rose to 50.9 from 49.2, which is the highest since April 2022. However, new export orders remained below the 50 boom/bust level for the eighth consecutive month. Germany’s manufacturing PMI rose above 50 for the first time in three-and-a-half years, while the French manufacturing PMI slipped back below 50 (49.9) after holding above 50 for the previous two months. The aggregate service PMI edged up for the first time in three months (51.9 from 51.6). Last year’s peak was in November at 53.6. The composite PMI rose to 51.9 from 51.3 in January.

• The busy week for UK data ended today with an unexpected jump in retail sales and mixed preliminary February PMI. January retail sales jumped 1.8% (median forecast in Bloomberg’s survey was for a 0.2% increase) after December’s 0.4% increase. Excluding gasoline, retail sales surged 2.0% following December’s 0.3% rise. The flash composite PMI ticked up 53.9 from 53.7 in January, which was the strongest since April 2024. The manufacturing PMI firmed to 52.0 from 51.8, while services growth eased slightly (53.9 vs. 54.0). When everything has been said and done, the swaps market anticipates a year-end rate of about 3.23%, which implies two cuts this year.

• Australia’s preliminary February PMI softened. The composite eased to 52.0 from 55.7 in January. It was 51.0 at the end of last year and 50.6 in February 2025. The manufacturing PMI stands at 51.5 (52.3 in January), while the service PMI is at 52.2 (56.3 in January).

• The Tokyo CPI that was reported a few weeks ago signaled the decline in Japan’s January CPI. The headline rate fell to 1.5% from 2.1%, and the core rate, which excludes fresh food, fell to the 2.0% target from 2.4% in December. Excluding fresh food and energy, consumer inflation remained sticky at 2.6% (2.9% in December). Separately, the preliminary February composite PMI rose to 53.8 from 53.1 in January. The manufacturing PMI is at 52.8 (51.5 in January), and the services PMI stands at 53.8 (53.7 in January).

• India’s February PMIs continued to show a strong start to the year. The composite PMI is 59.3 (58.4 in January), which is higher than the manufacturing PMI (57.5) and the services PMI (58.4). The Reserve Bank of India projects the economy will expand by 7.3% in the current fiscal year, up from 6.5% in FY25.

Author:
• Marc Chandler, Chief Market Strategist, BANNOCKBURN CAPITAL MARKETS

Compliments of Bannockburn Capital Markets – a member of the EACCNY