Written by the Market Insights Team
The dollar is trending lower
Boris Kovacevic – Global Macro Strategist
The US has recently shifted its stance on Russia and Ukraine, signaling potential sanctions relief in exchange for negotiations to end the war. Trump has intensified pressure on Ukraine, calling Zelenskiy a “dictator” after a $500 billion mineral rights deal fell through due to Ukrainian reluctance. This shift has unsettled European allies, who are now considering a security force for Ukraine but require US backing.
Meanwhile, economic uncertainty is rising as the Fed monitors Trump’s policies on trade, immigration, and fiscal spending. While Atlanta Fed President Bostic expects two rate cuts in 2025, businesses worry about higher costs from tariffs and labor shortages due to mass deportations. Signs of rising inflation are mounting, with headline CPI and PPI figures accelerating and recent surveys (New York and Philadelphia Fed) indicating increased price pressures.
As a result, investors have pared back expectations for Fed easing to less than one rate cut this year. The US dollar has not strengthened despite this, likely due to two factors: first, the absence of new tariffs has reduced safe-haven demand and the trade premium; second, the Fed pause narrative is driven by rising inflation expectations rather than stronger macro data. With this week’s data reflecting these trends, the dollar has been unable to benefit from the Fed holding rates steady. The Greenback is now at its lowest level this year, down 3.4% since its January peak. As we have previously noted, dollar bulls would need either continued tariff implementation by Trump or stronger macroeconomic data for a sustained rebound.
Testing $1.05 before PMIs and election
Boris Kovacevic – Global Macro Strategist
European markets declined today as geopolitical uncertainty and shifting economic expectations weighed on sentiment. Equities fell, led by losses in healthcare and energy stocks, though Eurozone consumer confidence rose to -13.6 in February—its highest level in four months—beating expectations. Optimism is fueled by hopes that the European Central Bank (ECB) will continue cutting rates, with markets pricing in a 25 bps cut at each of the next three meetings, bringing the deposit rate below 2% by 2026.
These economic shifts unfold amid rising geopolitical tensions, particularly in Germany, where the upcoming election could reshape European leadership. Conservative challenger Friedrich Merz reaffirmed support for Ukraine, while the UK and France are drafting plans for a European-led “reassurance force” to safeguard Ukraine if a ceasefire is reached with Russia.
Uncertainty remains high ahead of Germany’s general election later this week, but the euro has benefited from broad dollar weakness and soft US data. EUR/USD is testing the $1.05 level, with a break potentially targeting $1.0540. Today’s Purchasing Manager Indices will be key—continued signs of economic stabilization could bolster sentiment toward the common currency.
Weak US data pushes GBP/USD higher
Boris Kovacevic – Global Macro Strategist
Sterling continues to rise against its peers as strong wage and inflation data contrast with a weakening US macro outlook. GBP/USD climbed to $1.2660, on track for a third consecutive weekly gain, while lower oil and gas prices have supported the energy-dependent pound.
This week’s UK data showed wage growth hitting an eight-month high at 6.0% in December (6.2% in the private sector), while unemployment remained steady at 4.4%. Inflation also jumped to 3% in January, driven by rising food and airfare costs, reinforcing concerns for the Bank of England. While traders now expect 50 bps of rate cuts by year-end, sterling remains supported by a more favorable trade environment than the euro and dollar.
Dollar continues to decline
Table: 7-day currency trends and trading ranges
Key global risk events
Calendar: February 17 – 21
All times are in GMT
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
