The USD rally has finally hit a speed bump as market sentiment shifts amid mixed signals from President Trump, the Fed, and inflation data. While new tariffs were announced, their delayed implementation has eased immediate concerns, keeping risk sentiment buoyant and weighing on the safe-haven appeal of the USD. Fed Chair Powell reinforced a cautious stance, maintaining a modest easing bias, while sticky US inflation has left markets expecting a benign PCE deflator. Looking ahead, the USD’s next moves will hinge on February PMIs, the FOMC minutes, and Fed speakers. Unless economic data surprises to the upside or Fed officials adopt a more hawkish tone, the USD could struggle to regain momentum, with tariff-related headlines from Trump continuing to pose a wildcard.

The Canadian dollar has remained relatively resilient, dipping below 1.42 to fresh two-month lows as markets discount an immediate trade war escalation despite new US tariffs on steel and aluminum. While potential Canadian retaliation could weigh on US exporters, its immediate impact on the Fed’s policy outlook is expected to be limited. The relative stability in expected Fed-BoC policy divergence persists, even after a hotter-than-expected US CPI print reinforced the Fed’s cautious stance. This week’s focus will turn to Canada’s January CPI, which is likely to be distorted by the temporary sales tax break. However, any major shifts in US-Canada trade relations could carry more weight for the BoC’s outlook than a single data print.

Expected weekly trading range: 1.40 - 1.44

The euro has staged a notable rebound, driven by hopes for an end to the war in Ukraine, which have outweighed dovish ECB and sluggish economy concerns. The EUR could extend gains if optimism about peace leads to lower energy prices and a post-war reconstruction boost. However, skepticism remains among investors, who still see risks of a recession, US-EU trade tensions, and an ECB rate-cut cycle. Given this backdrop, the near-term EUR outlook remains muted, with a more sustained recovery hinging on the Eurozone avoiding recession. Next week’s Eurozone PMI data, Germany’s ZEW survey, and the pivotal German vote on February 23 will be closely watched for signs that the worst of the downturn may be behind us.

Expected weekly trading range: 1.47 - 1.51

The pound sterling got a boost last week from stronger-than-expected Q4 GDP data and hopes for a Russia-Ukraine peace deal. However, the details were less reassuring, with weak business investment and a reliance on public sector growth. Fiscal austerity measures in March could add further pressure. UK markets have slightly pared back BoE cut expectations but still price in monitory policy easing in the near-term. Next week’s key data releases—including PMIs, CPI, and labour market reports—along with BoE Governor Bailey’s speech, will be crucial. Strong data could lift GBP by tempering rate cut bets, while weak numbers may weigh on the currency.

Expected weekly trading range: 1.75 - 1.79

The Japanese yen weakened last week as US-Japan rate differentials took a back seat to tariff concerns following Trump’s 25% steel and aluminium tariffs. While direct Japanese exports of these metals to the US are minimal, only 0.2% of GDP, broader high-value exports raise the stake to 2.7%. Japan has requested exemptions, with PM Shigeru Ishiba pledging $1T in US FDI after meeting US President Donald Trump. The outcome will signal how negotiable these tariffs are. With little key US data ahead, JPY will track tariff headlines, while Japan’s GDP and CPI data may only move the currency if significantly stronger than expected.

Expected weekly trading range: 105.79 - 109.01

The franc remained resilient last week despite renewed optimism over Ukraine peace talks, as global uncertainty and US trade threats kept safe-haven demand intact. If negotiations progress, safe-haven demand for CHF could weaken. Despite the uncertain global backdrop, CHF remains in a range-trading mode. Stronger-than-expected core CPI provided support, though headline inflation eased to 0.4% YoY. While markets have pared back some SNB rate cut bets, a return to Zero Interest Rate Policy remains likely. Looking ahead, Swiss GDP and trade data should confirm economic stability, with little immediate impact on CHF unless exports show unexpected weakness.

Expected weekly trading range: 0.62 - 0.64

Throughout the week, the Chinese yuan remained within a narrow range, reflecting a period of consolidation following previous volatility. In January 2025, Chinese banks issued a record 5.13 trillion yuan in new loans, surpassing analysts' expectations. This surge is attributed to the People's Bank of China's (PBOC) efforts to bolster a sluggish economic recovery amid potential US tariff threats which remain a significant concern. The PBOC is expected to continue its supportive monetary stance, potentially implementing further interest rate cuts and reducing bank reserve requirements to stimulate economic growth.

Expected weekly trading range: 5.04 - 5.20

The Indian rupee experienced high volatility this week, initially plunging to a record low of 87.95 against the USD due to concerns over trade tariffs. In response, the Reserve Bank of India (RBI) intervened heavily, selling an estimated $10 to $11 billion in the spot market to stabilize the currency. This decisive action led to a recovery, with the rupee trading below 87.00, marking a 0.7% gain for the week—the most substantial weekly increase since July 2023. The RBI's intervention also influenced the forward markets, causing a rise in near-term forward premiums. Looking ahead, the rupee's trajectory will depend on global trade developments and the RBI's ongoing policy measures.

Expected weekly trading range: 60.19 - 62.03

Australian dollar continues to trade within a broad range, with downside support from stable investor sentiment and aggressive RBA rate cut pricing, while topside gains are capped by US trade risks, weak Chinese growth, and reduced Fed rate cut expectations. The key focus next week will be the RBA rate decision, with a 25bp cut expected. RBA is likely to initiate its easing cycle, but Governor Bullock’s guidance will be crucial—likely signalling a shallow rate-cutting path due to rental inflation, fiscal stimulus, and trade frictions. While a knee-jerk drop in AUD is possible after the rate cut, Bullock’s cautious tone may limit further losses.

Expected weekly trading range: 0.89 - 0.91

New Zealand dollar remains range-bound as markets await the RBNZ’s next move. New Zealand’s deeper-than-expected H224 recession and slowing core inflation give the central bank room to ease policy further. A 50bp rate cut next week is expected, bringing the OCR to 3.75%, with the RBNZ likely signalling further reductions towards 3.0%. Despite near-term inflation risks from Trump tariffs and higher commodity prices, weak domestic demand and downside risks to exports will keep the RBNZ cautious. With the market already nearly fully priced for this cut, any dovish revisions to the OCR path could weigh on the NZD further.

Expected weekly trading range: 0.80 - 0.82

The Mexican peso demonstrated resilience this week, despite US President Donald Trump's announcement of a 25% tariff on steel and aluminum imports. Analysts now think that the tariff threats are negotiation tactics, especially given the implementation delay. Additionally, Fed Chair Powell's comments on the strength of the US economy provided further support to the peso. The Mexican steel industry has urged the government to consider reciprocal measures if the tariffs are enacted. Looking ahead, the peso's performance will hinge on the outcome of trade negotiations and any potential retaliatory actions by Mexico.

Expected weekly trading range: 14.11 - 14.54