To The Moon

USD

The US Dollar experienced a volatile week, marked by shifting sentiment around trade policy, geopolitical tensions, and macroeconomic data (GS).

Key Market Drivers:

A major driver for the US Dollar this week was the Supreme Court's ruling on tariffs, which introduced a fresh injection of policy uncertainty (GS).

Following the Supreme Court striking down the bulk of the levies imposed last year under the federal emergency-powers law, the Dollar saw a muted depreciation against a broad range of currencies (GS).

The broad Dollar decline likely reflects this policy uncertainty, which can negatively influence investor and business activity (GS).

In response to the ruling, President Trump announced plans to impose a 10% stackable global tariff under Section 122 of the Trade Act of 1974, which authorizes a president to impose temporary tariffs for 150 days (Bloomberg).

This new tariff plan clouded the investment outlook for the greenback, causing the Bloomberg Dollar Spot Index to sink about 0.2% on Friday, though it still ended the week up more than 0.6% (Bloomberg).

The Dollar's resilience earlier in the week was supported by a shaky risk sentiment backdrop and a flight to safety amid escalating tensions in the Middle East (GS).

Solid macroeconomic data and hawkish Federal Reserve headlines also provided support to the Dollar before the tariff announcements (GS).

The absence of CNY fixings during the Lunar New Year holiday helped demonstrate how important the Yuan has been for the broader Dollar, as the CNY represents about 15% of the broad Dollar TWI (GS).

Speculative traders increased bets against the Dollar in the past week, turning the most bearish since 2021, holding about $22.2 billion in short positions (Bloomberg).

Supply/Demand Fundamentals:

On the macroeconomic front, US GDP is estimated by analysts to have risen 1.6% annualized in the advance reading for Q4, reflecting a large drag from federal government spending due to the government shutdown (GS).

The US trade deficit grew to $70.3 billion in December 2025, above the $55.5 billion forecast, with exports falling by 1.7% and imports rising by 3.6% (Saxo).

Initial jobless claims fell to 206,000 in mid-February, indicating a stable labor market, while the Philadelphia Fed Manufacturing Index increased to 16.3, exceeding expectations (Saxo).

US pending home sales fell 0.8% in January, marking another monthly decline and highlighting ongoing housing market challenges (Saxo).

Despite robust bond fund flows globally, Euro area demand for US bond funds has trended lower in recent months (GS).

Cross-border FX flows were robust across regions, but the USD and CNY saw the smallest net inflows as a percentage of AUM (GS).

Foreign investors continue to display lower demand for US bond funds, which could impact the fundamental capital flows supporting the greenback (GS).

The overarching theme remains that while US growth forecasts present upside risk to the Dollar, the uncertainty surrounding trade policy and the potential for a 10% across-the-board replacement tariff may cap significant gains (GS).

Additionally, Fed minutes showed officials remain wary about declaring victory over inflation, raising the market's macro sensitivity and keeping the "higher for longer" rate narrative alive (Bloomberg).

A survey of investors indicated that most expect the Supreme Court to block tariffs, but few expect tariff refunds, and most expect tariff rates to be broadly unchanged or decline only slightly this year (GS).

Two-thirds of surveyed investors expect the Fed, under a new chair, to take action aimed at lowering long-term interest rates in coordination with the Treasury (GS).

Overall, the Dollar's path forward will depend heavily on the balance between geopolitical safe-haven demand and the evolving US trade policy landscape (GS).

G10 Currencies

The G10 currency complex traded with significant dispersion, heavily influenced by geopolitical risk premiums, diverging inflation data, and specific domestic policies (GS).

Key Market Drivers:

JPY: The Japanese Yen showed weakness against the US Dollar during the Asian trading session, holding onto gains near its weekly high of 155.20 (Bloomberg).

The recent strength in the Yen and the long-end JGB rally following the LDP's landslide election victory have sparked renewed focus on potential repatriation flows from Japanese investors (GS).

However, there are no obvious signs of significant Japanese repatriation flows by unhedged investors, and demand for foreign bonds has remained relatively stable (GS).

The Bank of Japan (BOJ) is expected to continue normalizing policy settings with rate hikes when conditions allow, despite cooling inflation (Bloomberg).

EUR: The Euro hovered near its lowest level in a month, trading around 1.1765, as the US positioned forces for a potential strike on Iran, denting risk appetite and boosting the dollar (Bloomberg).

The Euro's correction lower was reinforced by softer inflation data in France (0.4%) and other countries, which increased pricing for a rate cut from the European Central Bank (MUFG).

Speculation over the early departure of ECB President Lagarde was dismissed as a primary driver for EUR/USD selling, with inflation divergence relative to the target being more important (MUFG).

GBP: The British Pound slipped 0.3% to 1.3452, extending losses for four straight sessions as rate cut odds for the March 19 BoE meeting firmed following recent UK economic data (Saxo).

NOK: The Norwegian Krone's recent outperformance, fueled by a procyclical backdrop, a terms of trade boost from rebounding energy prices, and a repricing in front-end yields, may be running out of gas (GS).

CAD: US-Canada trade tensions are back in focus as President Trump reportedly considers exiting the USMCA in favor of bilateral agreements, which poses a downside risk for the Canadian Dollar (GS).

CHF/JPY: The divergence between the safe-haven currencies CHF and JPY is primarily driven by relative inflation expectations, with JPY trading lower as real yields move higher and traded inflation drops (GS).

Supply/Demand Fundamentals:

JPY: Japan's key inflation gauge, the core CPI, rose 2% year-over-year in January, matching forecasts and marking the slowest pace in two years (Bloomberg).

Temporary factors and government steps to reduce fuel costs drove the inflation slowdown in Japan, but businesses continue to pass on rising input costs (Bloomberg).

EUR: Euro-zone private-sector activity surpassed expectations, with the Composite PMI rising to 51.9 in February, driven by a surprise expansion in Germany's manufacturing sector (Bloomberg).

Europe's economy is performing solidly, buoyed by Germany's spending on defense and infrastructure, though services inflation remains elevated (Bloomberg).

AUD: The Australian Dollar remained broadly firm around 0.7045, supported by a better-than-expected jobless rate that lifted the implied probability of a May RBA hike to 91% (Saxo).

G10: Geopolitical tensions and the risk of a supply disruption in the Strait of Hormuz have prompted significant hedging activity, with crude oil reaching a six-month high (Saxo).

The terms of trade impact from an oil price shock typically supports currencies like NOK and CAD, while precious metals rallies benefit the CHF (GS).

However, elevated near-term geopolitical risks and a potential moderation in oil prices could weigh on commodity-linked G10 currencies (GS).

Options markets reflect a focus on protecting against near-term Euro weakness, with meaningful demand extending toward the $1.15 level (Bloomberg).

The broader procyclical FX environment is here to stay, but the rate differential channels for currencies like NOK and EUR are vulnerable to incoming inflation data (GS).

Ultimately, G10 currency pairs are navigating a complex landscape of sticky service sector inflation, central bank policy divergence, and the overarching threat of a Middle East conflict (GS).

Asia Currencies

Asian currencies experienced mixed fortunes, with the spotlight on central bank meetings, China's economic policies, and the region's sensitivity to oil price shocks (MUFG).

Key Market Drivers:

CNY: The Chinese Yuan is expected to continue its appreciation trend, moving from a "trot to a canter," supported by deep undervaluation and the remarkable strength of the export sector (GS).

The consistent pace of CNY appreciation has slightly eroded its undervaluation signal, but it remains approximately 22% undervalued based on fair value models (GS).

THB: The Bank of Thailand is expected to cut rates by 25 basis points in its upcoming meeting, driven by negative inflation and a generally weak growth outlook (MUFG).

KRW: The Bank of Korea is projected to keep rates on hold for an extended period through 2026, balancing concerns over rising house prices and a volatile won (MUFG).

INR: The Indian Rupee remains on the back foot due to continued capital outflows from the PE/VC exit cycle and soft FII inflows, despite a recent US-India trade deal (MUFG).

Concerns regarding the impact of AI on India's IT services sector are also weighing on the INR, though some near-term relief could be possible from positive seasonality (MUFG).

PHP: The Philippine central bank (BSP) recently cut rates by 25bps and maintains a dovish bias, but higher domestic rice prices are acting as a near-term constraint on further easing (MUFG).

IDR: Bank Indonesia (BI) remained on hold, with the weaker Indonesian Rupiah being the key constraint for further rate cuts over the near term (MUFG).

ILS: The Israeli Shekel is viewed as an attractive FX hedge to geopolitical risks and tech stock underperformance, given its high sensitivity and starting level of 25% overvaluation in trade-weighted terms (GS).

Supply/Demand Fundamentals:

CNY: China's overall current account surplus registered 3.7% of GDP in 2025, and forecasts expect it to increase to 4.3% of GDP in 2026, indicating strong external balances (GS).

The return of Chinese markets from the Lunar New Year holiday is expected to provide more clarity on post-holiday demand for industrial metals and broader economic activity (Saxo).

INR: India's fourth-quarter GDP is projected to slow, with softer export growth driven by the lagged impact of tariffs, though domestic demand remains resilient (MUFG).

India is set to import the most crude from Saudi Arabia in over six years, narrowing the gap with top supplier Russia amid US pressure to reduce Russian purchases (Bloomberg).

Asia Broad: Currencies like the PHP, INR, KRW, and THB tend to be highly sensitive to spikes in oil prices (MUFG).

The current geopolitical tensions in the Middle East and the resulting surge in Brent crude prices pose a significant risk to these energy-importing Asian economies (MUFG).

However, with global oil fundamentals still pointing to an oversupply of 3-4 million barrels per day, the impact of sustained military intervention on oil prices might be faded over time (MUFG).

In the short term, Asian FX weakness driven by oil price spikes could present opportunities to fade moves in pairs like KRW, TWD, CNY, and MYR (MUFG).

Frontier FX currencies like EGP and TRY have come under pressure due to rising oil prices and geopolitical risks, though high international reserves provide some protection (GS).

The overall outlook for Asian currencies remains heavily dependent on China's post-holiday economic momentum, regional central bank easing cycles, and the trajectory of global energy prices (MUFG).