The United States Dollar is decidedly – once again – on the back foot this morning and is losing ground against all major currencies
Overview
Though some moves are larger than others, the combination of more tariff noise and Germany’s announcement of a very large defense fund – have placed the Buck at the back of the G10 pack today. European markets in general are outperforming this morning after German Chancellor-in-waiting Friedrich Merz said the nation would do “whatever it takes” to shore up security in the wake of the US-Ukraine fallout of last week, reminiscent of former ECB head Mario Draghi’s catchphrase that rescued EUR during the global financial crisis earlier this century.
Tariffs do remain a heavy focus for markets after yesterday morning’s imposition of blanket 25% tariffs against Canada and Mexico with a further 10% levy against China. Commerce Secretary Howard Lutnick, however, spoke to reporters after equity markets closed yesterday and signaled that there is still room for negotiation between the US and targeted nations. Lutnick said that President Trump is considering relief for these nations, and a compromise on goods covered by North American free trade agreements from Canada and Mexico could be announced as soon as today. This has all spelled a strong Dollar-negative trend that may continue through today. Volatility yesterday reached record high across many currency pairs, and the potential for more upheaval on trade policy today is keeping risk premiums remarkably high.
Tariff risks are also changing the larger outlook on the US economy – markets have growing concerns that the health of the US economy may be in jeopardy given uncertainty on both trade and domestic policies. Traders are bracing for a potential slowdown in the back half of this calendar year, which could further spell doom for the Dollar. Non-farm payrolls later this week, the first job reading entirely within Trump’s fledgling presidency, will provide markets with some much-needed clues on this front.
What to Watch This Week…
- European Central Bank Rate Decision, Thursday
- US Non-Farm Payrolls, Friday 8:30AM
- Monex USA Online is always open
Complete Economic Calendar can be found here.
EUR ⇑
The single currency continued to rip higher yesterday afternoon and overnight, opening this morning’s trading at its strongest point since November of last year against the Buck. This is EUR’s best three-day run against USD since the back end of 2022. The move is primarily fueled by Germany’s proposal of a EUR 500 billion defense fund, announced yesterday afternoon – simply put, increased defense spending could be a boon to the larger Eurozone economies and help to heat up some of the rather stagnant GDP readings many of the economic bloc’s nations have seen the last couple years. The European Central Bank is, however, widely expected to cut interest rates by 25 basis points tomorrow morning.
CAD ⇑
Even the Canadian Dollar and Mexican Peso this morning are managing to eke out some gains against USD, following Commerce Secretary Howard Lutnick’s surprise announcement that there may be room for tariff relief from the US as soon as this afternoon. Canada hit back against the US yesterday morning with some retaliatory tariff action, scheduled to ramp up further in three weeks. Outgoing Prime Minister Justin Trudeau called Trump’s tariff action “a very dumb thing to do,” further souring the tone of relations between the US and Canada. If relief comes through this afternoon, CAD and MXN could break out of their current ranges and the Buck could further fall.
