GBP/USD hovers near 1.2676 as the increased risk aversion and rising US Treasury yields support the US Dollar. Recent remarks from President Trump, "The tariffs are going forward on time, on schedule," have ignited fears of a global trade war, increasing the safe-haven flows for the currency. On Wednesday, Federal Reserve Bank of Atlanta President Raphael Bostic noted that the Fed should keep interest rates unchanged to continue exerting downward pressure on inflation, with comments, "You can say that we're hitting our employment mandate, and now we have to get the price stability mandate under control. We need to be in a restrictive posture. Inflation is high, but they have seen a lot of progress. The outlook is for inflation to continue on the path to 2%." On tariffs, US Commerce Secretary Howard Lutnick declared that April 3 would be the baseline for reciprocal tariff data. He emphasised that Chinese vehicles are prohibited in the US, calling China a significant concern. In a separate statement, US Treasury Secretary Scott Bessent reiterated his dedication to collaborating with Congress to ensure President Trump's tax cuts become permanent.

Swati Dhingra, a member of the Bank of England (BoE) Monetary Policy Committee, emphasised on Wednesday the challenges faced by central bank policy in dealing with trade-related supply shocks. She pointed out that monetary policy actions might not be required if global economic fragmentation occurs smoothly. Yet, if external supply shocks increase in frequency, it is essential to have an independent monetary authority that maintains an explicit inflation target. To clarify the current tariff concerns, she added that "Higher US tariffs likely to cause a strengthening of the US Dollar in the short term would have some price-increasing effects in the UK. On the overall impact on inflation in the UK from US tariffs, the direct effect of US import costs and US Dollar strengthening are likely to be offset by reduced global price pressures."

In today's session, the US economic schedule, including a fourth-quarter (Q4) Gross Domestic Product (GDP), Durable Goods Orders, and weekly Initial Jobless Claims, will significantly influence today's GBP/USD exchange rate. Investors are closely watching UK Prime Minister Keir Starmer's meeting with US President Donald Trump on Thursday for fresh impetus on the trade policies between both nations.

AUD/JPY Recovers due to Hawkish BoJ

AUD/JPY trades near 94.28, as disappointing Australian data adds downward pressure on the Aussie. Australian Private Capital Expenditure data contracted by 0.2% quarter-on-quarter in Q4 2024, missing market forecasts of 0.8% growth, following an upwardly revised 1.6% expansion in the previous quarter. Australia's monthly Consumer Price Index (CPI) noted a 2.5% year-on-year increase in January, aligning with December's rise but falling short of market expectations of 2.6% growth. Comments from Reserve Bank of Australia Deputy Governor Andrew Hauser suggested a positive inflation outlook but emphasised the importance of seeing this progress materialise first. He also added that the tight labour market in Australia continues to pose a challenge for managing inflation. Furthermore, increased risk sentiment follows US President Donald Trump's statement emphasising that sweeping US tariffs on imports from Canada and Mexico "will proceed" after the current month-long delay concludes next week.

On Thursday, Lu Lei, Deputy Governor of the People's Bank of China (PBOC), suggested that the Bank should actively support fundraising efforts, including issuing special treasury bonds, to help major state-owned banks strengthen their Common Equity Tier 1 (CET1) capital. Given the strong trade relationship between China and Australia, any changes in China's economic policy could impact the AUD.

Rising market speculation that the Bank of Japan (BoJ) will hike interest rates further amid broadening inflation in Japan. In January, the SPPI figures increased by 3.1% year-on-year, rising from 3.0% and matching market expectations. Meanwhile, Japan's National Consumer Price Index (CPI) reported a year-on-year inflation increase of 4.0% in January, up from 3.6%, as indicated by the Japan Statistics Bureau.

In upcoming sessions, the US Gross Domestic Product (GDP) for Q4, the weekly Initial Jobless Claims, and the US PCE Price Index, along with key economic reports from Japan, including Industrial Production, Retail Sales, and Tokyo inflation, due on Friday, will significantly influence the AUD/JPY exchange rate.

EUR/USD Subdued by Trump's Tariff Threats

EUR/USD softened near 1.0480 due to the weakened euro following US President Donald Trump's threats to impose 25% tariffs on the European Union (EU). On Wednesday, Trump's remarks confirmed his intention to impose 25% tariffs on Canada and Mexico and announced plans to add the EU to the list of nations subjected to trade penalties for exports to the United States (US). The European Union responded with a commitment to react "firmly and immediately" to these "unjustified" trade barriers, indicating its readiness to retaliate swiftly against the proposed levies. Any escalation in trade tensions could worsen the Eurozone's economic slowdown, adding selling pressure on the shared currency. On the economic front, Germany's GfK Consumer Confidence Survey dropped to -24.7 for March 2025, down from a revised -22.6 and below expectations of -21.4. GDP data revealed a 0.2% quarter-on-quarter contraction in Q4 2024. The Spanish Flash annual inflation printed at 3.0%, up from January's 2.9% and matching market expectations.

While the US dollar strengthens due to Trump's renewed tariff plans, contraction in the S&P Global US Services Purchasing Managers' Index (PMI) may dampen the greenback. Weak economic data has led the market to expect the Federal Reserve (Fed) to ease its restrictive policy stance by introducing a rate reduction at the June policy meeting.

In addition to today's ECB Monetary Policy Meeting Accounts, the market sentiment for the EUR/USD exchange rate will be influenced by the US Durable Goods Orders data for January, the Initial Jobless Claims for the week ending February 21, the revised Gross Domestic Product (GDP) report for the final quarter of 2024, and speeches from Fed policymakers Michael Barr, Michelle Bowman, Thomas Barkin, Beth Hammack, and Patrick Harker.

USD/CHF Strengthens Ahead of US Q4 GDP Release

USD/CHF edges higher near 0.8972 as the growing market expectation that the Federal Reserve (Fed) would deliver at least two rate cuts this year supports the greenback. Recent remarks from Thomas Barkin, President of the Federal Reserve Bank of Richmond, anticipated another decline in Personal Consumption Expenditure (PCE) inflation later this week, underscoring the Fed's significant progress in addressing inflation, which has caused fluctuations in the greenback. However, despite his optimistic outlook, Barkin emphasised the necessity of a cautious "wait and see" approach in light of ongoing policy uncertainties. On Wednesday, Atlanta Fed President Raphael Bostic stated that the Fed should maintain steady interest rates to control inflation. He emphasised that we're meeting our employment mandate but must now concentrate on price stability. Inflation remains high; however, significant progress has been made, and the outlook suggests that inflation will continue to move towards the 2% target.

January's New Home Sales dropped 10.5% month-on-month, reaching 657,000 units, down from the revised 734,000 units in December and below the expected 680,000 units. The US Conference Board's Consumer Confidence Index also fell to 98.3 in February, down from 105.3 in January, marking the largest decline since August 2021. Similarly, the University of Michigan Consumer Sentiment Index decreased to 64.7, below the anticipated 67.8. Additionally, five-year consumer inflation expectations rose to 3.5%, surpassing the consensus estimate of 3.3%.

Conversely, the German federal election results improved the yields on 10-year Swiss government bonds. Still, the weaker Swiss Consumer Price Index (CPI) data has increased anticipations for additional easing measures from the Swiss National Bank (SNB) in March, leading to fluctuations in the currency. President Donald Trump's recent reinstatement of tariffs on Canadian and Mexican imports has raised worries about global trade conflicts. Indicators of trade disputes, economic uncertainty, and ongoing geopolitical tensions may drive up the demand for safe-haven currencies like the Swiss Franc (CHF).

In today's session, broader market sentiment around global trade wars and the US economic docket will drive the USD/CHF exchange rate.

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