Risk sentiment started on weak footing in March, markets priced in U.S. tariff plans on Canadian and Mexican goods, along with the prospect of further trade restrictions.
How did the major assets react to Monday’s headlines?
We have the deets!
Headlines:
- Over the weekend, U.S. President Trump announced plans for a “Strategic Crypto Reserve” that may include BTC, ETH, XRP, SOL, ADA
- Over the weekend, U.K. and other European leaders agreed to draft a Ukraine peace plan to take to the U.S.
- Australia S&P Global Australia Manufacturing PMI Final for February 2025: 50.4 (50.6 forecast; 50.2 previous)
- Japan Jibun Bank Manufacturing PMI Final for February 2025: 49.0 (48.9 forecast; 48.7 previous)
- China Caixin Manufacturing PMI for February 2025: 50.8 (50.6 forecast; 50.1 previous)
- U.K. S&P Global Manufacturing PMI Final for February 2025: 46.9 (46.4 forecast; 48.3 previous)
- Swiss procure.ch Manufacturing PMI for February 2025: 49.6 (48.0 forecast; 47.5 previous)
- Euro area HCOB Manufacturing PMI Final for February 2025: 47.6 (47.3 forecast; 46.6 previous)
- Euro area Inflation Rate MoM Flash for February 2025: 0.5% (0.5% forecast; -0.3% previous); Core CPI eased from 2.7% to 2.6%
- U.S. S&P Global Manufacturing PMI Final for February 2025: 52.7 (51.6 forecast; 51.2 previous)
- U.S. ISM Manufacturing PMI dipped in February as tariff concerns weighed
- Canada S&P Global Manufacturing PMI for February 2025: 47.8 (51.7 forecast; 51.6 previous)
- Trump said Japan and China cannot keep reducing the value of their currencies
- OPEC+ has decided to proceed with a planned April oil output increase
Broad Market Price Action:
Dollar Index, Gold, S&P 500, Oil, U.S. 10-yr Yield, Bitcoin Overlay Chart by TradingView
Markets were on edge Monday after Trump confirmed 25% tariffs on Mexico and Canada would take effect Tuesday, with more planned for April.
U.S. stocks took a hit, with the Nasdaq sliding 2.64% to a four-month low, the S&P 500 falling 1.76%, and the Dow dropping 1.5%. U.S. 10-year Treasury yields fell to a nearly three-month low as investors sought safety, while oil prices slumped to a 12-week low after OPEC+ announced plans to increase output in April, dragging WTI crude down 2% to the $68.40 levels.
U.S. manufacturing data added to the unease, with the ISM prices index jumping to 62.4 in February, its highest since June 2022, signaling that tariffs were already pushing costs higher. Gold climbed 1.88% to $2,895, likely on safe-haven demand and growing bets on earlier Fed rate cuts if the trade war takes a toll on the economy.
European markets, however, moved higher, possibly on expectations of increased defense spending. Over the weekend, British Prime Minister Keir Starmer announced that European leaders had agreed to draft a Ukraine peace plan to present to the U.S., which seemed to boost sentiment. Germany’s DAX surged 2.68%, with defense stocks like Rheinmetall, BAE Systems, and Thales soaring 13-16%.
Bitcoin struggled despite Trump’s weekend “Strategic Crypto Reserve” announcement, possibly as investors remained skeptical about its feasibility amid mounting economic concerns.
FX Market Behavior: U.S. Dollar vs. Majors:
Overlay of USD vs. Major Currencies Chart by TradingView
The U.S. dollar took a hit on Monday, sliding nearly 1% as markets reacted to trade policy shifts and fresh economic data. The greenback faced pressure from multiple directions, with early losses kicking off after stronger-than-expected Chinese manufacturing data boosted risk sentiment. The slide accelerated after Euro Area inflation came in at 2.4%, slightly above forecasts, giving the euro a lift ahead of Thursday’s European Central Bank meeting.
European currencies were the day’s biggest gainers. The euro jumped 0.9% to 1.0460, while the British pound climbed 0.7% to 1.2670, fueled by news that European leaders are ramping up defense spending and drafting a coordinated Ukraine peace plan.
The yen had a choppy session, initially strengthening before reversing course on reports that the U.S. may pressure Japan to hike rates to address alleged currency manipulation. That sent USD/JPY back above the closely watched 150 level.
Meanwhile, the Canadian dollar regained some ground late in the session after signs that negotiations over Trump’s tariffs might still be in play. Despite the rebound, traders remain cautious as they await Tuesday’s tariff rollout and Friday’s critical U.S. jobs report.
Upcoming Potential Catalysts on the Economic Calendar:
- Japan consumer confidence at 5:00 am GMT
- France government budget balance at 7:45 am GMT
- Spain unemployment change at 8:00 am GMT
- Italy monthly unemployment rate at 9:00 am GMT
- Eurozone unemployment rate at 10:00 am GMT
- U.S. FOMC member Williams to give a speech at 7:20 pm GMT
- Australia RBA Deputy Governor Hauser to give a speech at 9:45 pm GMT
With a light trading calendar, the major assets will likely take their cues from tariff and global growth headlines. Oh, and watch out for news that may influence the overall risk sentiment!
For news trading traders, focus in the early European trading could be on the unemployment rate and bond market moves for potential signs of economic weakness, while speeches from Fed and RBA officials could introduce some volatility in USD and AUD pairs.
Don’t forget to check out our brand new Forex Correlation Calculator when taking any trades!