Uncertainty is creeping back into the global outlook. Tariff ambiguity and US–Iran tensions have become fresh pressure points that could test market resilience, though these flare‑ups might follow the familiar pattern of sharp escalation followed by rapid de‑escalation.
USD: Tariff uncertainty
The week opens with US trade policy back in the spotlight after a landmark Supreme Court ruling struck down the administration’s use of emergency powers to impose broad tariffs under IEEPA — a tool that had generated around $133bn in duties. The decision removes one of Washington’s quickest levers for deploying sweeping trade measures.
US President Trump moved immediately to reassert control, invoking Section 122 of the 1974 Trade Act to impose a 10% global tariff, later raised to 15% via executive order. These measures sit outside the scope of the Court’s ruling, though they can only remain in place for 150 days without congressional approval. A determined White House looks set to keep pushing its protectionist agenda through whatever legal channels remain open.
How trading partners respond will hinge on Congress. If Republicans back legislation to hard‑wire higher tariffs into law, retaliation becomes more likely. If they resist, Trump may be forced back to the drawing board — and markets will need to reassess how durable this latest protectionist push really is.
However, even if the administration keeps tariffs elevated, the overall burden on US imports could still end up lower than before. That would take some of the heat out of inflation and ease the supply‑chain friction created by recent protectionist measures. In that sense, the Supreme Court ruling is unlikely to be the macro “game‑changer” some initially assumed. As long as the average tariff rate doesn’t rise meaningfully, the impact on GDP, inflation and — crucially — the Fed’s policy outlook should remain limited.
Still, the near‑term FX impact is straightforward: the dollar is softer against most major peers as renewed trade uncertainty pushes flows toward the Swiss franc, yen and euro. Investors appear to be rebuilding a risk premium around US assets — a dynamic that weighed on the greenback through the first half of last year and looks to be resurfacing now.
Iran and oil
The other global theme worth watching is the rapidly evolving US–Iran dynamic. The US has significantly expanded its military footprint in the region and Trump has warned that strikes are on the table unless a deal is reached within the next 10–15 days.
The US–Iran dynamic carries more genuine tail risk but is harder to read. Any disruption to the Strait of Hormuz — a corridor for around 20% of global oil flows — would challenge the relatively constructive global economic outlook. Still, history suggests that when real risks to US economic momentum or financial markets emerge, Washington tends to pull back. And given the administration’s negotiating style, sudden diplomatic off‑ramps can appear just as quickly as tensions rise.
In the near term, oil‑price risks still offer some support to the dollar, given the now‑positive dollar–oil beta. But the spill‑over to other energy exporters is far more limited. Supply‑driven improvements in terms of trade tend to deliver smaller and shorter‑lived FX gains than demand‑driven shocks, even if knee‑jerk moves look impressive on the day.
EUR: Anti-dollar gains
The US–EU trade picture is even murkier than it was. The European Parliament froze approval of the EU’s commitments after the Greenland conflict escalated, and it’s now unclear whether lawmakers will demand a full renegotiation of the deal. In the meantime, Washington is likely to lean on sector‑specific tariffs and Section 301 measures to push Brussels back to the table.
Tariff uncertainty is giving the euro an undercurrent of support, lifting most currencies in its orbit. It should be noted that every EUR/USD dip since the Liberation Day turmoil last April has been shallow and short‑lived — a constructive signal for G10, Asian and EM FX more broadly. The euro’s slide from late January also looks to be losing momentum as investors reassess Europe’s bargaining position relative to the US.
One gauge of demand in the sprawling global currency markets shows the dollar trading near the biggest discount to the euro in more than five years, signaling softer appetite for the greenback and more appetite for the common currency — at least for the moment.
Euro bulls will also be watching this week’s German data, which could mark the early stages of an industrial rebound as infrastructure and defence spending finally filters through.
GBP: By-election jitters meet technical stress
Before renewed trade uncertainty took hold, investors responded well to last Friday’s upbeat data, with both February PMIs and January retail sales beating expectations and lifting sterling into the close. The holiday season helped drive the retail monthly outperformance – the strongest since 2024 – while PMI readings firmly above 50 point to a more constructive backdrop heading into 2026 as budget anxiety and trade uncertainty eased.
Even so, inflation and the labour market remain the key drivers of the BoE’s policy path, and sterling by extension. Both tilted dovish last week, giving the Bank’s recent shift in tone a dose of data‑driven confidence and pulling sterling lower on the week. GBP/EUR ended 0.5% down, while GBP/USD fell over 1.2%, with the latter’s weakness amplified by USD‑supportive factors. On GBP/EUR, we had actually expected a slightly higher weekly close on the assumption that markets had largely priced in the soft macro backdrop. But December’s softer‑than‑expected labour market report – especially wage growth easing toward levels consistent with on‑target inflation – stood out ahead of the sharper disinflation expected in the coming months, overriding that numbness.
For this week, politics takes centre stage, with a UK by-election to replace an MP. The event is usually negligible, but with Starmer’s position strained by ongoing backlash, it carries greater significance. A Labour win would ease political uncertainty but not eliminate it, with May’s regional elections standing as a bigger test of the Prime Minister’s leadership. In the meantime, media leaks on this topic are likely to keep sterling on the softer side.
Piercing through the weakening technical armours that has supported GBP/USD and GBP/EUR since November, sterling now looks more vulnerable. On a negative election outcome, we call out 1.3331 as the key support for GBP/USD. A break there would confirm the loss of the bullish structure in place since November. Meanwhile, GBP/EUR is eyeing December’s low at 1.1368.
That said, US trade policy is firmly back in the spotlight and weighing on the dollar in the near term, helping to push GBP/USD back above 1.35. Renewed uncertainty around Washington’s tariff strategy is prompting investors to rebuild a risk premium around US assets — a dynamic that tends to soften the greenback and has offered sterling some short‑term relief.
However, the UK now risks losing its tariff advantage as Trump moves ahead with a 15% across‑the‑board rate. That shift could raise export costs by around £3bn and effectively wipe out Britain’s preferential 10% arrangement, leaving UK exporters facing the same tariff wall as everyone else.
Market snapshot
Table: Currency trends, trading ranges & technical indicators
Key global risk events
Calendar: February 23-27
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.
