Despite early optimism in financial markets, the mood soured in the latter half of February due to weaker U.S. economic data, declines in AI and technology stocks, and tariffs threats on Canada, Mexico and China. FX markets experienced saw sharp losses and volatility, as measured by the Chicago Board of Trade’s VIX index, which jumped to the highest level of the year.
If this a sign of more big moves to come, is your business prepared to navigate the storm? Download our Global FX Outlook for February to stay ahead of market shifts and help your business manage currency risks.
Event in focus: Who cuts when?
Markets face uncertainty as central banks reassess rate cut expectations amid shifting inflation and economic risks. The Fed, ECB, and BoE started 2024 planning to ease policy, but challenges remain.
In the U.S., the Fed remains caught between persistent core inflation and slowing growth. Headline inflation may have cooled, but weak retail sales and declining business sentiment are fueling concerns. With markets now expecting just two rate cuts in 2025, the Fed’s path remains unclear.
The European Central Bank has already begun easing, but fragile growth, slowing wages, and trade risks limit aggressive cuts. Meanwhile, the Bank of England faces the toughest challenge—stubborn inflation and high wages alongside stagnating growth and rising borrowing costs.
Trump moving markets
Global policy uncertainty has surged due to President Trump’s unpredictable leadership style and shifting political priorities. Markets are on edge as trade agreements are shaken up, alliances change, and the President takes an aggressive stance in economic negotiations. Investors face a backdrop where sudden policy changes and increased volatility have become the new normal. Global markets face heightened uncertainty as the world adjusts to this new reality.
Tariffs: Inflationary or stagflationary?
Expectations for a Federal Reserve rate cut in the first half of 2025 have been diminished. Inflation data came in stronger than expected, reinforcing concern that price pressures remain and forcing markets to reassess monetary easing timelines. Despite this, the US economy shows signs of slowing, with key indicators such as housing, consumer spending and services all underperforming. Risk assets and the US dollar are under pressure.
Dollar falls short of expectations
Stronger-than-expected inflation numbers have pared back expectations for Federal Reserve rate cut this year, however the U.S. dollar hasn’t strengthened. The absence of new tariffs has reduced safe-haven demand and the trade premium, while changing expectations for a Fed pause are being driven by rising inflation rather than macro data. Ultimately, the dollar has been unable to benefit from the Fed holding rates steady.
Watch an overview of the March outlook
Watch our Market Insights team provide a short summary of the most crucial insights from the March Global FX Outlook and start making informed decisions for your business today.
For businesses making cross-border payments, this evolving landscape underscores the importance of proactive FX risk management. The combination of tariff threats, inflationary pressures, and monetary policy shifts will continue to drive currency fluctuations. Companies should consider hedging strategies and real-time FX insights to mitigate risks in an increasingly unpredictable market.
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