USD-selling continued unabated yesterday, as markets added to wagers that the Federal Reserve (Fed) could actually cut interest rates more than previously expected. In light of recent concerns over the US economy, markets are now pricing in three rate cuts this year, up from two rate cuts expected only a week ago and the next rate cut is now expected in June, rather than September.
Read more about the Fed's interest rate decisions here - When is the next Fed interest rate decision?
EUR drew support from Germany's announcement that it will amend its constitution to exempt defence spending from limits on fiscal spending, in addition to setting up a EUR500bn infrastructure fund. The improved growth outlook in the region now means markets are no longer pricing in three further rate cuts by the European Central Bank (ECB) this year.
On the tariff front, US Commerce Secretary Howard Lutnick hinted at a compromise with Canada, Mexico and China, allaying fears heightened over the last few days.
*Daily move - against G10 rates at 7:30am, 05.03.25
** Indicative rates - interbank rates at 7:30am, 05.03.25
USD could come under further pressure this afternoon should the services and ADP payroll numbers disappoint, especially given the recent sensitivity of USD to weaker data. Markets are expecting softer numbers than January already but an even weaker set of numbers could see both GBPUSD and EURUSD extend recent gains – both currently trading at four-month highs. EUR is extending gains following on from the news out of Germany yesterday.
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