8 min readWeekly Recap:
As expected, the Federal Reserve left its rates unchanged in the March meeting at 4.25% to 4.5% for a second straight meeting. The Fed is adopting a more patient approach to monetary policy easing amid an uncertain outlook for the US economy due to Trump’s trade tariffs.
While the FOMC raised its inflation forecast to 2.7% this year from 2.5%, it lowered its growth projection to 1.7% from 2.1%. However, policymakers maintained expectations of two 25-basis-point rate cuts this year. Fed Chair Jerome Powell also downplayed concerns of a recession in the US.
Meanwhile, concerns over Trump’s trade tariffs continued to weigh on sentiment, helping US equities recover from 2025 lows. The S&P 500 rose 0.5% last week after 4 weeks of losses.
Meanwhile, Gold prices rose to fresh record highs, boosted by safe-haven flows amid the uncertainty. XAU/USD reached a peak of $3057 before easing lower.
However, as the new week begins, reports indicate that Trump and his team could consider less severe trade tariffs on April 2. Reports indicate Trump will not impose industry-specific tariffs, and reciprocal tariffs will be limited to 15 countries with major trade imbalances with the US. This possible softer stance lifted the market mood on Monday, boosting stocks and the USD as US recession fears eased.
Eurozone PMIs (Monday)
Last week was quiet regarding eurozone data, so the markets will be looking keenly at PMI figures for further insight into how the eurozone economy is holding up ahead of expected reciprocal trade tariffs from Trump at the start of April.
Eurozone PMI figures have shown that business activity in the region is broadly stuck in a rut with very tepid growth in February. An expansion in the services sector barely offset ongoing declines in manufacturing. In February, the composite PMI held steady at 50.2, the level 50, separating expansion from contraction. The data added to the view that the eurozone countries’ economy remains stagnant after expanding just 0.1% in Q4. That said, sentiment figures are starting to show some improvement, particularly for Germany, after the government approved a massive increase in spending to boost defense and infrastructure spending.
Improving PMIs could help EURUSD recover after falling away from 1.0940, its 5-month high last week.
US PMIs (Monday)
With the increasingly uncertain outlook for the US economy, more attention than usual could be paid to PMI data, given that they’re considerably more timely than the GDP figures that were due on Friday. The GDP data could be considered stale, given that they relate to a period over three months ago.
In February, U.S. economic data showed that growth faltered along with increased goods prices. Companies blamed the weaker expansion on uncertainty and disruption caused by recent U.S. government policy initiatives, and tariffs are likely the key cause of higher prices in the manufacturing sector.
While the US was the fastest-growing major developed economy last year, February PMI data showed that US exceptionalism faltered to a stalled pace. The US composite felt 50.4, a 17-month low in February. Investors will be watching closely to see whether this trend continues, and if it does, it could fuel recession worries, dragging stocks lower.
The Nasdaq steadied last week after dropping to a five-month low in March. Trump trade optimism is helping the mood at the start of the week. However, weak data may undermine the improving mood.
BoJ minutes (Tuesday)
At last week’s meeting, the BoJ left interest rates on hold at 0.5%, a 17-year high, following a 25 basis point hike in January. BoJ governor Ueda highlighted concerns over rising global economic uncertainties owing to Trump’s trade wars. The minutes will be watched closely for further insight into the discussions surrounding the rate decision, shedding light on the economic assessments. While U.S. policy risks and uncertainties surrounding the global growth outlook will take center stage, investors will also be looking for clues over whether Japan’s economy is progressing towards sustainably achieving inflation above 2%. The BoJ is expected to hike rates again this year with the market pricing in a 25 basis point hike in July.
A cautious-sounding BoJ could pressure JPY and help USD/JPY extend its recovery from a 5-month low reached earlier this month.
UK CPI Wednesday
In January, UK inflation rose to 3%, up from 2.5% in December. This was ahead of estimates of 2.8% and rose to its hottest level since March 2024. Inflation was driven higher by increased transport, food, and energy costs and rising industrial goods costs. In response to persistent inflation, the BoE voted to leave interest rates unchanged at 4.5% in last week’s meeting. Central bankers also highlighted trade tariff uncertainty.
CPI is expected to ease slightly to 2.9% YoY in February, while core inflation is expected to ease to 3.5% from 3.7%. However, this reprieve could be short-lived, as CPI is still expected to rise to a peak of 3.7% in Q3 of this year. Even so, the markets expect a 25 basis point rate cut in June, followed by two more 25 basis point cuts in the year’s second half.
Cooler-than-expected inflation could lift BoE rate cut bets, pulling GBP/USD lower.
Chancellor Rachel Reeve’s Spring Statement is also this week. The Office of Budget Responsibility is expected to slash UK growth forecasts that eroded the Chancellor’s £9.9 billion headroom. The government has already announced spending cuts and is expected to announce more on Wednesday, although no changes to taxes are expected. Should investors get spooked over the outlook for the UK economy, GBP/USD could fall further.
US core PCE (Friday)
Expectations are for core PCE, the Fed’s preferred gauge for inflation, to rise by 0.3% MoM in February, in line with January. On an annual basis, core PCE eased to 2.6% in January from 2.9% in December, but this was still considerably higher than the Fed’s 2% target.
The Fed has said repeatedly, including at the FOMC meeting this week, that they are in no rush to cut rates as they have time to evaluate the impact of Trump’s trade policies on the US economy and inflation before considering another move.
According to the WSJ’s Timirasos, while core PCE could ease to 2.5% in January, the Fed still upwardly revised its inflation forecast this year to 2.7%, supporting a cautious approach to rate cuts, particularly as it is still too early for Trump’s trade tariffs to be felt in the data.
Hotter-than-expected inflation could drag on stocks, boost the USD, and pull Gold lower.
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