By Kian Songra
With clocks turning forward in Europe, Monday starts off relatively quietly before the action intensifies with key economic events and geopolitical developments throughout the week. The focus will be on the US tariff developments, critical economic data releases, and central bank decisions that will shape market sentiment.
Tariffs take centre stage
US President Donald Trump’s reciprocal tariffs are set to take effect on Tuesday, April 1st, and the details remain eagerly awaited. Markets will scrutinise their scope and impact, particularly on major trade partners and global risk sentiment. Any significant tariffs on European or Asian goods could heighten trade tensions, leading to volatility in currency markets. The US Dollar (USD) is expected to benefit from safe-haven flows, while risk-sensitive currencies like the Euro (EUR), Pound Sterling (GBP), and Australian Dollar (AUD) may face selling pressure if risk appetite deteriorates. Market participants will also be watching for any retaliatory measures from affected countries, which could further shake market confidence.
US economic data in focus
The week brings several key US economic reports that will influence currency movements. On Tuesday, the ISM Manufacturing PMI and JOLTS Job Openings will offer insights into business sentiment and labour market strength. Strong data could support expectations of continued Federal Reserve policy restraint, boosting the USD, while weaker figures may raise concerns about economic momentum.
Wednesday’s ADP Employment Change report will act as a precursor to Friday’s Nonfarm Payrolls (NFP) data. The ADP report tracks private-sector job creation and can shape expectations for the official labour report. A strong reading may bolster the USD, whereas a weak number could increase market speculation about potential rate cuts.
Thursday’s ISM Services PMI and weekly jobless claims will provide further signals about economic resilience. The ISM Services PMI is closely watched due to the sector’s large contribution to US GDP, while rising jobless claims could indicate softening labour conditions.
Friday’s Nonfarm Payrolls (NFP) report will likely be the most critical release of the week. Markets will focus not just on the headline job creation number but also on wage growth figures. If job gains remain solid and wage growth accelerates, it could reinforce expectations of a hawkish Fed, supporting the USD. However, a weaker-than-expected NFP report, particularly if wage growth stagnates, may intensify bets on future rate cuts, leading to a decline in the dollar.
European and Australian events to watch
Outside the US, key European and Australian events will also impact forex markets. On Tuesday, European Central Bank (ECB) President Christine Lagarde is set to deliver a speech that could influence the EUR. Given recent economic weakness in the eurozone, investors will be looking for any signs of the ECB’s policy direction. A dovish tone, signalling a potential rate cut or extended accommodative measures, may put pressure on the EUR. On the other hand, any hawkish remarks suggesting that the ECB remains committed to maintaining rates or tightening policy could provide support for the euro.
Also, on Tuesday, the Reserve Bank of Australia (RBA) will announce its interest rate decision. With domestic economic growth struggling, economists are anticipating whether the central bank will hint at a potential rate cut in the near future. If the RBA signals a dovish outlook, the Australian Dollar (AUD) could weaken against its major counterparts. However, if policymakers maintain a neutral or slightly hawkish stance, the AUD may find some support.
Geopolitical and Fed policy considerations
Beyond economic data, traders will keep a close eye on geopolitical developments and Federal Reserve commentary. Tensions in the Middle East remain a key factor that could drive volatility, particularly if oil prices surge in response to any escalation. Rising oil prices could increase inflationary pressures globally, influencing central bank policy decisions.
Additionally, speeches from Federal Reserve policymakers will be closely watched for any hints about the future direction of US monetary policy. With markets speculating about when the Fed might pivot toward rate cuts, any signals from officials could shift expectations and drive movements in the USD.
Summary
This week is shaping up to be highly eventful for currency markets, driven by US tariff developments, crucial economic data releases, and central bank decisions. The USD may remain well-supported if economic data points to continued resilience in the US economy. However, any signs of weakness could fuel speculation about policy easing, leading to renewed pressure on the greenback. Meanwhile, the EUR, GBP, and AUD will react to domestic economic conditions and central bank communications. Those with requirements should brace for heightened volatility as markets digest key developments and adjust their positions accordingly.
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