The currency market started the week by reflecting the ongoing tariff threats, resulting in a stronger dollar across various currency pairs. The yen showed some support, while high-beta currencies like the Australian dollar (AUD) and New Zealand dollar (NZD) faced pressure due to fears surrounding U.S. protectionism, particularly towards China.
In Australia, the Reserve Bank decided to maintain interest rates, which initially saw the AUD rally, but it quickly settled close to its previous close. Despite the recent movements, there remains potential for the dollar to strengthen further if the upcoming tariff announcement leans towards a hawkish outcome.
However, the market is cautious about possible data releases that could influence the dollar negatively. Today’s U.S. macro data, including job openings and the ISM manufacturing index, are critical.
A moderate decline in job openings and a dip in the manufacturing index would reflect ongoing uncertainties, possibly impacting the dollar’s tentative recovery. Meanwhile, the euro (EUR/USD) briefly dipped below the 1.080 mark before recovering.
Despite the EU being a significant target of tariffs, the euro has shown more resilience than currencies closely tied to China or the Canadian dollar (CAD). Reports suggesting that more European Central Bank (ECB) officials are open to pausing interest rate cuts in April may have lent support to the euro.
However, markets still expect a 74% probability of a cut, contingent upon the results of today’s flash Consumer Price Index (CPI) report. In Poland, inflation data released yesterday remained unchanged at 4.9%, surprising many analysts.
This static inflation figure suggests a peak for the year, leading up to the National Bank of Poland’s meeting this week. While immediate rate cuts are improbable, any dovish signals could impact market perceptions.
The market is currently priced for rate cuts expected in July, with up to a 100 basis point reduction by the end of 2025 being anticipated. In Central and Eastern Europe, hawkish ECB statements have lowered sentiment for regional currencies, exacerbated by tightening interest rate differentials.
Today’s GDP figures from the Czech Republic and various PMI releases are expected to influence market sentiment, as the decision on U.S. tariffs looms closer.