The ongoing trade war continues to strain alliances across North America, Europe, and the Asia-Pacific region. The United States has imposed a 25% tariff on imported steel and aluminum without granting exemptions, despite significant lobbying efforts. In response, the European Union has announced retaliatory measures, though these will not take effect for another month, leaving room for negotiations. Meanwhile, the US dollar remains relatively firm but is consolidating ahead of key economic events, including a potential rate cut by the Bank of Canada and the release of US consumer price index data. Government bond yields remain stable, with the US 10-year Treasury slipping below 4.27%. In equity markets, major Asia-Pacific indices have rebounded after recent losses, while European stocks and US index futures show signs of recovery. Additionally, gold prices continue to rise, briefly surpassing $2,925, and oil remains above $66 per barrel.

Asia Pacific Markets

Despite expectations that China might allow the yuan to depreciate in response to US tariffs, officials have maintained a relatively stable exchange rate.
In Japan, concerns over currency devaluation have surfaced, with US President Trump expressing dissatisfaction over the yen's weakness. However, Japan's central bank has been actively raising interest rates, and past interventions aimed to strengthen, rather than weaken, the yen. The yen recently hit its highest level since last October, with the US dollar falling as low as JPY146.55 before recovering. Resistance levels are now seen near JPY149.50. Overall, the yen has appreciated by approximately 7.75% against the dollar since January.

European Markets

The US trade conflict with Canada and the EU is impacting currency movements and economic expectations. The euro recently climbed to nearly $1.0950, supported by concerns that US protectionist policies could weaken American economic growth. While the European economic calendar remains light, industrial production data has shown mixed results. France and Spain reported declines of 0.6% and 1.0%, respectively, while Germany saw a surprising 2.0% increase. Italy's industrial output data is due soon. Meanwhile, the EU has introduced countermeasures against US tariffs, imposing duties on $26 billion worth of American goods, including steel, aluminum, textiles, agricultural products, and home appliances.
In the UK, the British pound has stabilized following a two-month rally. It recently peaked at $1.2965 and is currently trading within a narrow range. The Bank of England is expected to maintain its current monetary policy in March, but the market anticipates rate cuts later in the year, with the first potential cut in May.

American Markets

The US dollar index remains near recent lows, fluctuating between 103.20 and 103.70. The currency has weakened by nearly 4% this month, marking its lowest level since October. Market attention is focused on upcoming inflation data, as analysts expect a slight decrease in year-over-year consumer price index growth. The newly implemented tariffs on steel and aluminum stand at 25%, significantly higher than the 10% imposed during Trump's first term. This decision has raised concerns about potential negative effects on US manufacturing, as higher material costs could reduce demand and shift sourcing to alternative suppliers. While some anticipate the Federal Reserve will cut interest rates in June, this expectation is based more on potential labor market deterioration than on rapid inflation declines. Futures and swap markets have already priced in this possibility, reflecting investor concerns over economic stability amid trade tensions.