owever, the Dollar rally came to an abrupt halt on Thursday after President Trump’s impromptu announcement that he intended to impose a 25% tariff on steel imports and a 10% tariff on aluminum ones. On Friday, the European Union and China made it clear that they intended to retaliate with so far equally modest measures. The Dollar sold-off along with most financial assets and ended the week roughly flat against the Euro. The biggest winner in the G10 space was the Japanese Yen, up against every other major currency on word that Bank of Japan Governor Kuroda would start thinking about an exit path from its currently ultra-loose monetary policy.

News that the German SPD had approved a Grand Coalition Government with Merkel’s Christian Democrats offset some of the inconclusive results of the Italian elections and left the Euro roughly unchanged in early Monday trading. With the majority of the votes counted, the Eurosceptic Five Star Movement Party are set to become the largest party, although a long period of coalition negotiations are all but assured. In addition to the fallout from Trump’s tariff announcement, the focus this week will be on the ECB meeting on Thursday and the US February payrolls report on Friday.

Major currencies in detail

GBP

Bad news on Brexit negotiations were the main Sterling driver last week, in the absence of major economic data releases. The release of a rather harsh European Union draft agreement put Sterling on the backfoot all week, and it ended the week down against both the Euro and the Dollar. This week is also quiet for UK data. Expect the Pound to be driven by the EU reaction to Prime Minister May’s fairly conciliatory speech on Friday.

EUR

Economic newsflow last week was, on balance, negative for the Euro, but eventually the market decided that the protectionist noises from across the Atlantic balanced this soft sentiment out.

In addition to some slowdown in economic momentum in the key PMI business activity indices, inflation numbers stubbornly refuse to show any sign of a sustained upward trend. The ECB staff forecasts to be published at the March ECB meeting on Thursday are key. We will look closely to see how this disappointing inflation data is feeding into said forecasts. Contrary to some market forecasts, we do not expect any significant changes in forward guidance. This disappointment could be a headwind for the common currency.

USD

There is no major announcements scheduled in the US until the payrolls report out on Friday afternoon. Until then, the Dollar should trade mostly in reaction to the fallout from Trump’s tariff announcement. We think that the legal basis for Trump’s intemperate announcement regarding national security is shaky at best. Given the near unanimous opposition to the tariff from US business interests, there is a very good chance that the tariffs are not actually implemented, particularly given the increasingly chaotic state of the Trump administration.