The US has announced a one-month delay in implementing 25% tariffs on steel and aluminum, set to take effect on March 12. This postponement suggests the tariffs may be used as leverage in negotiations, which explains the subdued market response. Analysts believe the broader scope of these tariffs compared to 2018 targets the re-export of Chinese steel, yet they may strain relationships with US allies. Meanwhile, the US dollar is fluctuating within a narrow range against G10 currencies, while the Indian rupee has shown notable gains due to suspected market intervention.
The Chinese yuan remains relatively stable as Beijing has not taken measures to devalue it in response to US tariffs. The People's Bank of China continues to set the yuan’s daily reference rate within a tight range, limiting fluctuations. Meanwhile, the offshore yuan has remained within a defined range, though the dollar recently reached a four-day high against it.
The Japanese yen has also remained within a narrow trading band, largely influenced by movements in US Treasury yields. Despite a reportedly positive meeting between Japan’s Prime Minister and former US President Trump, Japan has not been exempted from the steel and aluminum tariffs. Economic data in Japan remains light until the release of Q4 GDP next Monday, which is expected to show modest quarter-over-quarter growth.
The euro initially rebounded from $1.0140 to around $1.0440 but later pulled back due to trade tensions and tariff threats, currently stabilizing near $1.0290-$1.0325. Key resistance levels could limit further gains. While the European Union is considering retaliatory tariffs, the UK has opted out of such measures. The British pound has weakened, hitting a six-day low below $1.2335 before showing signs of stabilization. Sterling has also fallen below its 20-day moving average for the first time in several weeks. This week’s economic calendar is relatively light, with key data releases, including Q4 GDP, scheduled for later in the week.
The upcoming US steel and aluminum tariffs remain a key focus for financial markets. The delay in implementation suggests negotiations are ongoing, contributing to the measured market response. A potential supply shock, combined with above-trend economic growth, reinforces the Federal Reserve's cautious stance on monetary policy. Fed Chair Powell is expected to emphasize patience during his congressional testimony, indicating no rush to ease restrictions after previous rate cuts. Ahead of Powell’s remarks, January CPI data will be released, with expectations of little change year-over-year.
The US Dollar Index is consolidating, trading between 108.20 and 108.45, with a potential breakout above 108.60 or below 107.70 determining further movement.