The global financial markets are experiencing heightened uncertainty due to ongoing US tariff discussions. The US dollar has started the week on a softer note, consolidating within last week’s range. Most G10 currencies have shown strength, with notable fluctuations in the British pound. Meanwhile, Norway’s inflation data exceeded expectations, reducing the likelihood of interest rate cuts and boosting its currency by 1%. In equity markets, after last week’s 2.5% increase, the MSCI Asia Pacific Index has shown weakness. European stocks also face declines, following their first weekly loss of the year. In the bond market, US Treasury yields have dropped below 4.26%, reversing from last week’s five-month low of 4.10%. Gold continues to trade in a narrow range, while oil prices remain within their recent consolidation phase, stabilizing after approaching a six-month low.

Asia Pacific Markets

In the Asia Pacific region, currency fluctuations remain a key focus. The US dollar is strengthening against the offshore Chinese yuan after recently testing the lower end of its range. The yuan has remained relatively stable due to Chinese monetary policy interventions, with the People’s Bank of China setting a higher reference rate for the dollar.
Additionally, Japan’s currency remains under pressure, with the US dollar hovering just above the key JPY147 level. Real wage growth in Japan remains negative, with January figures showing a -1.8% decline, adding concerns over consumer spending. Furthermore, Japan reported its first trade deficit in over a year, primarily due to a sharp reversal in its trade balance from a surplus in December to a significant deficit in January.

European Markets

European financial markets are reacting to economic shifts and monetary policy adjustments. The euro recently approached $1.0890. The European Central Bank has carried out five consecutive rate cuts, with market expectations for another cut in April decreasing after Germany’s industrial output showed unexpected strength. However, a decline in exports offsets these gains, while rising government spending in Germany and the EU is reshaping long-term yield expectations.
In the UK, the pound saw brief gains before reversing, trading lower against the dollar. Unlike the EU, the UK has been reluctant to increase spending, choosing instead to reallocate funds to defense. Gilt yields have risen, but not as sharply as in the eurozone, reflecting cautious market sentiment.

American Markets

The US dollar has faced sustained downward pressure, recording daily losses throughout last week for the first time since March 2024. Currently, the currency is trading within Friday’s range, with resistance near the 104.25 level. The dollar’s weakness is attributed to shifting interest rate differentials and changing investor sentiment. Upcoming economic data, including CPI and PPI reports, will be closely watched. The JOLTS report, historically a market-moving event, has lost some influence. Meanwhile, the US government remains committed to implementing steel and aluminum tariffs this week, with additional tariff threats against Canadian lumber and dairy products. These trade policies add further complexity to the economic outlook and may influence currency movements in the coming days.