USD: Finding balance in a shifting market
The US dollar Index has seen some notable swings lately as it navigates a tug of war between prospects of decent growth and sticky inflation and shifting trade policies. While the index recently touched 98.1 before settling back near 97.7, it remains resilient despite a spike in market volatility. This stability comes as the administration pivots from the now struck down IEEPA tariffs to new 15% levies under Section 122. Although these new measures act as a momentarily bridge, the shift has brought back trade policy uncertainty. While the effective tariff rate is currently close to where it stood last week, the lack of long-term clarity on future trade barriers continues to weigh on the broader dollar narrative.
On the monetary side, recent data shows that price pressures remain stubborn with core inflation sitting at 3%. This has prompted a more cautious tone from the Federal Reserve, as officials seem increasingly wary of cutting interest rates too quickly. Such a hawkish stance usually provides a solid floor for the currency, even as we digest the news that tariff refunds likely will not provide an immediate economic boost. History suggests that these types of refunds can take years to process, meaning they are unlikely to change the 2026 tax revenue outlook. Even so, the recent court rulings have reduced the risk of sudden and dramatic tariff shifts, as the President can no longer use a magic tariff pen to threaten partners on a whim, which offers some structural relief for global markets.
Geopolitical tensions are also keeping the fear index elevated above 20 as markets watch developments between the US and Iran. With the US deploying significant resources to the region, oil prices recently reached a new high for the year. This situation creates a delicate balance for a presidency that campaigned on avoiding new conflicts while still maintaining a strong international presence. Most analysts expect this to result in limited actions rather than a major escalation that could hurt financial markets ahead of the midterms. For now, the focus remains on whether these tensions will lead to a new deal or continue to simmer as a source of market nervousness.
Despite the flurry of headlines, the broader equity market is finishing another healthy quarter of earnings with nearly 80% of companies beating expectations. It is encouraging for most market participants that growth is becoming more diversified, with energy and consumer staples leading the charge rather than just a few massive tech firms. This shift away from overdependence on a handful of names is a positive sign for the long-term health of the S&P 500.
Today, President Trump delivers the State of the Union address, where he’s expected to discuss policy priorities like tariffs and affordability ahead of the November midterms. Markets will pay special attention to Nvidia earnings (Wed) and the Apple annual general meeting (Tue) while US data releases cover consumer confidence (Tue), and producer price index (Fri). It’s a busy week that balances political rhetoric with major corporate updates and a heavy Fedspeak speaking schedule. Global focus shifts to inflation readings from Australia (Wed), Tokyo (Fri), and regional Europe (Fri) to gauge broader price trends. Central bank events include interest rate decisions in Hungary (Tue) and South Korea (Thu). The busy calendar concludes with GDP figures from India (Fri), and Canada (Fri).
CAD: USD/CAD trading higher
The Canadian Dollar has maintained a relatively steady stance since last Friday’s SCOTUS decision and the flurry of macro data coming from both the US and Canada. The Loonie traded within a defined range between 1.36 and 1.371 against the US Dollar throughout last week. A hotter than expected PCE coming from the US, along with market jitters is keeping the US Dollar bid, which is putting a cap on any short-term advancements on the Loonie.
In relation to the SCOTUS decision from last Friday, for Canada, the situation offers a mix of relief and new challenges. The new Section 122 tariffs will not apply to CUSMA compliant Canadian goods. The small share of non-compliant goods previously faced a 35% levy under the now invalidated IEEPA regime. However, the ruling means the President can no longer use a magic tariff pen to threaten partners on a whim. While the immediate threat of universal fentanyl tariffs is gone, there is a growing sense that losing this broad emergency shortcut might make the administration more desperate to use the upcoming CUSMA review to exert maximum pressure on Canada.
The long-term danger for Canada and other trading partners is adapting to this new, more disciplined but equally aggressive trade reality. The President has promised to launch new Section 301 investigations to sustain these tariffs beyond the immediate horizon, bringing a rigid structure to future trade battles. Importantly, these new Section 122 tariffs are limited to 150 days before they require Congressional approval, setting the stage for a massive legislative showdown. Furthermore, the issue of tariff refunds from the previous IEEPA era will now be heavily litigated in lower courts.
EUR: Technicals turn heavy
The euro has slipped back below the $1.18 handle this morning, continuing to hover around its 50‑day moving average, which is acting as the key near‑term support. With EUR/USD now trading beneath its 21‑day moving average — which has rolled over decisively — it’s starting to look as though short‑term momentum is tilting lower and the pair is preparing for a deeper test of support. The 100‑day moving average, sitting just below $1.17, now looks like the next gravitational pull for the pair — a level that could easily act as a magnet if downside pressure persists.
However, the challenge for the dollar is that uncertainty is creeping higher again, reinforcing the point that policy risk remains its biggest headwind. The currency is being pulled in two directions: a resilient US economy and fading expectations of near‑term Fed cuts are supportive, yet a growing list of policy‑related concerns is tugging it lower. And the euro typically benefits when the dollar comes under pressure, with anti‑dollar flows providing an additional tailwind for the single currency.
On the macro side, the question now is whether Germany is finally entering the long‑awaited cyclical upswing. The Ifo index jumped to 88.6 in February from 87.6 in January — its strongest reading since last summer. Both the current‑assessment and expectations components improved in tandem, signalling that sentiment is firming across the board.
January’s survey was likely still clouded by the Greenland conflict, but this month’s release comes before German firms have had a chance to fully digest the latest tariff uncertainty. Even so, the message is clear: the upswing is being driven by fiscal support, particularly in defence and infrastructure, and is now showing up in improving order books and falling inventories. If this momentum continues, it could offer the euro a degree of structural support by helping stabilise Germany’s industrial base and easing concerns that Europe is stuck in a low‑growth rut.
Market snapshot
Table: Currency trends, trading ranges & technical indicators
Key global risk events
Calendar: February 23 – 27
All times are in EST
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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.
