Return of the tariff man

Yesterday's currency recap

The week was dominated by sustained USD strength, geopolitical risk, and diverging activity signals across the US and Europe. USD extended its rally through midweek, initially supported by risk-off flows tied to renewed US-Iran tensions and rising oil prices, and later by stronger-than-expected US data – durable goods, industrial production, jobless claims, and the Philadelphia Fed survey. USD sold going into Friday's close, after the Supreme Court ruled the president had overstepped authority in last year’s global tariffs. The removal of levies, which had created a $130B+ budget hole, lifted a major overhang on earnings and growth prospects. Most of the burden had fallen on US companies and consumers, but the White House signaled it may restore tariffs via other mechanisms, leaving trade uncertainty alive.

GBP came under early pressure after dovish comments from BoE’s Catherine Mann and soft UK CPI, with rate markets pricing around 48bps of easing this year. Stronger UK flash PMIs on Friday helped sterling stabilise and trimmed aggressive easing expectations beyond March. EUR remained softer overall, weighed down by weaker German sentiment and ECB leadership uncertainty, though firmer PMIs and steady wage growth (3% YoY) supported the ECB’s hold stance.

Today's GBP rates

Key data points

What we think

USD has opened the week weaker as fresh trade policy uncertainty resurfaced after President Trump reintroduced a 10% global tariff – later raised to 15% – following the Supreme Court’s rollback of prior measures. Markets are pricing a higher risk premium on US assets, with USD broadly softer and safe havens outperforming. JPY and CHF led gains, while EUR also advanced. The move suggests policy uncertainty is outweighing any optimism around lower effective tariff rates in Asia. Near term, USD direction hinges on whether trade tensions escalate further and how this feeds into Fed expectations. For now, defensive FX flows dominate and USD upside appears limited.

Focus shifts to key confidence and inflation indicators across Europe. In Germany, the IFO business climate (88.3 expected), final 4Q GDP, and GfK consumer confidence (UK) will provide early signals on Q1 momentum. Eurozone final CPI (1.7% YoY, core 2.2%) and February national inflation prints from France and Germany will shape ECB expectations, with wage growth and services inflation closely watched. UK political risk remains on the radar ahead of the Gorton and Denton by-elections, where fiscal slippage could pressure gilts and GBP.

In the US, durable goods, factory orders, consumer confidence (88 expected), regional Fed surveys, weekly jobless claims, and Friday’s PPI will be key to assessing whether upstream price pressures are building after last week’s firm PCE. Housing data and construction spending will gauge domestic demand resilience.

Globally, Japan’s Tokyo CPI, industrial production, Australia’s CPI, and Canada’s GDP are all out this week.

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