Instimatch - FX morning commentary - 17/3/25

Good morning

Risk assets are a little calmer at the start of a new week. US Treasury Secretary Scott Bessent has tried calming some nerves by calling equity corrections healthy. The 10-Y yield continues to hover around the 4.30% level. The Fed gathers on Wednesday and has some final input today with the February retail sales data even as they won’t change the status quo decision that’s widely expected although the door will likely remain open for a May cut. The Fed will present updated forecasts, but markets expect them to come with a big uncertainty disclaimer. However, the Fed’s commentary on tariffs’ impact on inflation and growth will be closely watched. The USD index was largely unchanged at 103.71 in Asian trading, remaining slightly above a four-month low it reached earlier this month.

EUR/USD is trading close to the 1.09 level as the pair continue to find some support from improving risk sentiment amid a potential ceasefire discussion between Trump and Putin. Any progress here is probably further good news for European FX and soft news for the DXY.  Later this week, there will be a vote in the Bundestag (March 18) and Bundesrat (March 21) on the fiscal package that the CDU/CSU, SPD and Greens settled on last week.  The 10-Y German bond yield trading around the 2.90% level.

The big event this week for GBP FX is the Bank of England meeting on Thursday. Traders expect an unchanged decision, keeping the Bank Rate at 4.50%. The market reaction is expected to be rather muted but look out for any guidance on altering the gradual approach to cutting interest rates. For now, German politics and global factors are the main driving force for EUR/GBP.  Sterling continues to trade on the defensive following last week’s disappointing set of industrial data. EUR/GBP rallied from the 0.837 support area towards 0.841.

USD/JPY was steady overnight around 148.90.  The Bank of Japan’s upcoming meeting on March 18–19, is anticipated to maintain the current interest rate at 0.5%, despite rising inflationary pressures.

USD/CNY and USD/CNH were both steady at 7.2375 and 7.2414 respectively.

Over the weekend, China announced steps to help revive domestic consumption in 2025. These measures include plans to: 1) increase incomes through supporting employment, skills training, while reducing overdue payments, 2) expand consumption capacity through improving social services and targeted assistance, 3) improve service consumption through encouraging inbound tourism and expanding service industry offerings, 4) support consumption upgrades through consumer goods trade-in programs and stabilising the real estate market, and 5) enhance the quality of consumption through supporting the development of Chinese brands both at home and abroad, together with facilitating the integration of technology and consumption, among other policy pledges. 

Meanwhile, economic indicators released earlier today reflect a mixed outlook in China. In January and February, industrial production grew by 5.9%y/y, surpassing expectations of 5.3%. Retail sales saw a 4.0% increase, up from December’s 3.7%, driven by Lunar New Year spending. However, the urban unemployment rate rose to 5.4% in February, the highest in two years, indicating ongoing labour market challenges.