The U.S. tariffs, due to take effect on April 2, pose a significant risk to global trade dynamics, potentially affecting currencies tied to key trading partners like the EU and China. At the same time, critical U.S. economic indicators—such as the Conference Board consumer confidence and core PCE inflation data—will shed light on domestic economic health and the Federal Reserve’s policy direction. Meanwhile, ongoing Russia-Ukraine peace talks, showing slight progress but no ceasefire, continue to inject uncertainty into markets, influencing EUR performance.
Table of contents
Impact on Currencies
- USD: Data Hurdles Before the Tariff Deadline The USD regained ground last week after early March softness, bolstered by the Fed’s cautious stance on rate cuts and anticipation of the April 2 tariffs. However, near-term data risks loom: Tuesday’s consumer confidence, expected around 93, faces downside pressure from recent weak activity data, while Friday’s core PCE (forecast at +0.3% MoM) could offer mild USD support if firm. The USD may soften early in the week due to PMIs and confidence but is likely to recover by Friday’s PCE release, with the DXY potentially stabilizing around 104.
- EUR: Temporary Lift from Data EUR/USD is trading about 1% above fair value, though swap rate differentials suggest a weaker euro. Today’s eurozone PMIs could reflect fiscal optimism from Germany’s stimulus plan, tilting toward EUR-positive outcomes. Tuesday’s German IFO index provides another sentiment gauge to watch. While ECB speakers are active this week, no major policy signals are expected before tariff clarity emerges. EUR/USD might climb above 1.090 by Wednesday on strong data, but gains are likely to fade by week’s end as defensive positioning resumes, with a push above 1.10 remaining doubtful.
- GBP: Budget-Driven Downside Risks GBP faces pressure after EUR/GBP fell below 0.840 last week, driven by hawkish BoE rhetoric and EUR long unwinding. Wednesday’s Spring Statement is the focal point, with fiscal tightening expected through spending cuts, risking negative gilt market reactions and growth downgrades. Today’s PMIs are likely to favor the eurozone over the UK, adding weight to GBP. With services CPI holding near 5%, policy shifts are unlikely, but the outlook points to EUR/GBP testing and possibly breaching 0.845 highs.
Geopolitical Implications: Trade Tensions and Conflict
The impending U.S. tariffs could escalate trade frictions with the EU and China, disrupting global supply chains and undermining investor confidence. This might boost demand for safe-haven currencies like the USD and JPY. Concurrently, the sluggish Russia-Ukraine talks continue to weigh on market sentiment; any deterioration could heighten risk aversion, further pressuring the EUR and other risk-sensitive currencies.
Outlook and Considerations for Traders
This week presents a complex landscape for forex traders, with economic data and geopolitical events dynamically influencing major currency pairs. The USD may see short-term volatility but could regain strength as the tariff date nears. The EUR might find temporary support from regional data, though broader tariff concerns will cap upside potential. The GBP faces significant challenges from domestic fiscal policy and economic forecasts. Traders should stay vigilant, as the interplay of these factors offers both risks and opportunities.
Author
Fabio Vasques is the founder of The Trading Academy and a highly experienced forex trader with over 8 years in the markets. Specializing in all major dollar pairs, Fabio combines deep market knowledge with a sharp eye for high-probability setups. With a bachelor's degree in Business Administration, he brings a structured, strategic approach to trading and education. With over 100,000 YouTube subscribers, his leadership and consistency have helped shape The Trading Academy into a go-to platform for serious traders looking to master the markets.
Share Article: