A quieter market session could favour the dollar

Geopolitics in the spotlight

With US President Trump taking advantage of the long US weekend to visit his Florida resort, there are expectations for a quiet market session today. Having said that, developments on the geopolitical scene are significant. US and Russian delegates are scheduled to hold talks in Saudi Arabia on Tuesday, with both Ukraine and the EU being absent from the negotiations. Even the choice of country for these talks is indicative of Europe’s struggle to play a key role on the geopolitical stage, as historically, Switzerland or Austria have been selected as the venues for such negotiations.

In response, European leaders are meeting today in Paris, for an emergency summit called by French President Macron, to prepare for Ukraine’s post-war future. However, with the German federal elections around the corner, no substantial progress is expected. Interestingly, gold is being affected by these developments, retreating from its recent all-time high. This move could also be due to profit-taking after a strong rally, with the precious metal hovering below the $2,900 level today.

Euro gains despite dovish ECB

The euro is apparently also benefiting from the increased possibility of the conclusion of the Ukraine-Russia conflict. Euro/dollar is trading slightly below the 1.0500 area, after last week’s 1.6% gain. The euro is recording a solid 1.3% rally against the dollar in February, which is the strongest monthly performance for the eurozone’s currency since August 2024, when the Fed signalled its readiness to start easing its monetary policy stance.

This move comes amidst a period of decent eurozone data prints and mostly positive US economic releases. This week, the calendar is quieter, as Friday’s preliminary PMI surveys for the euro area side are expected to prove market moving. In the US, various business surveys and the Fed minutes from the late-January meeting are seen generating headlines. Additionally, a plethora of Fed speakers are expected this week, with three Fed officials - board members Bowman and Waller, and Philadelphia’s Harker - on the wires today.

Pound’s recent gains could be under threat this week

Several currencies have taken advantage of the dollar’s retreat. Cable is up 1.6% this month, but there is a crucial data calendar this week. Tuesday’s labour market figures, Wednesday's CPI report and Friday’s retail sales numbers could turn the tide for the pound. Additionally, a negative set of data this week could also fuel discussions about the late-March Spring budget, with numerous analysts pointing to potential adjustments to the Autumn budget tax rises.

Asia-Pacific region in the spotlight as RBA and RBNZ meet

Both the RBA and the RBNZ are holding their first monetary policy meetings for 2025 this week. While the latter is forecast to cut rates by 50bps - with a 10% chance of a 75bps adjustment - the RBA is expected to announce its first rate reduction since 2020, having resisted joining the rate-cutting club up to now. US tariffs and the continued failure of the Chinese administration to restart the local economy have firmly opened the door to tomorrow’s probable rate adjustment. A dovish show from these central banks could endanger both the aussie’s and kiwi’s solid gains against the US dollar in February.

Yen benefits from another set of strong data

Finally, dollar/yen is in retreat once again today as the positive Japanese data releases continue. Specifically, the preliminary GDP print for the fourth quarter of 2024 jumped by 0.7% quarter-on-quarter, partly erasing the weaker third quarter, and the GDP deflator increased by 2.8% on an annual basis. Following last week’s solid PPI report, which tends to lead CPI by a few months, there are increasing expectations for another BoJ rate hike soon, especially if the imminent Shinto round results in robust wage increases.