February 2024 saw some strong moves in the forex market, especially for the US dollar. Even on the day this article was written, the currency made strong gains, although this is somewhat against the overall trend during the month, influenced by evolving expectations of Federal Reserve policy, and the uncertainty of President Trump’s policies.
The euro remained sensitive to economic data and geopolitical tensions. The pound demonstrated resilience, despite ongoing economic challenges. The Japanese yen strengthened against the USD, driven by expectations of policy normalisation by the Bank of Japan.
Here’s what to watch in March:
- GBP: Despite potential economic headwinds, the GBP rally continued in February, rising above 1.26. Will it persist?
- Federal Reserve Policy: Market participants will closely monitor any signals regarding the timing and magnitude of potential rate cuts (if any).
- Geopolitical Risks: Ongoing conflicts (and potential ceasefires) and political uncertainties could trigger safe-haven flows, impacting the USD and JPY.
US Dollar (USD)
While February was mostly a month of weakness for the USD, the last few sessions have seen it strengthen as investors look to the haven of the US dollar as they assess the US economy and react to the recent tariff talk from Trump. With inflation showing some stickiness, the markets have been adjusting the timing and potential for rate cuts. The USD is expected to remain sensitive to incoming economic data.
According to Reuters, Brad Bechtel, global head of FX at Jefferies in New York stated: “We’re at a stage now where we’re probably just going to chop around for a bit until we hear more about what’s actually happening with tariffs.”
Key Levels
- EURUSD: Higher – 1.0530, Lower – 1.0200
- GBPUSD: Higher – 1.2800, Lower – 1.2400
- USDJPY: Higher – 152.00, Lower – 146.70
Euro (EUR)
The euro’s performance in March will depend on the ECB’s policy decisions and the Eurozone’s economic health. Inflation concerns remain as it has recently crept higher, and any signs of economic weakness could weigh on the euro. The potential for a ceasefire between Ukraine and Russia could also impact the currency in March. Trump recently threatened 25% tariffs on the EU which could weigh on the currency.
Focusing on the euro, Deutsche Bank said in a recent note that they see “the balance of risks as evenly distributed over the next few months, with downside risks emanating from additional disruption from trade policy/tariffs (and by extension a more dovish ECB stance), but upside risks emanating from a more pro-active German fiscal stance and a more positive resolution to the Russia – Ukraine crisis.”
Key Levels
- EURUSD: Higher – 1.0530, Lower – 1.0200
- EURGBP: Higher – 0.4500, Lower – 0.8200
British Pound (GBP)
The pound has shown resilience, but economic challenges persist. The UK’s economic outlook remains uncertain, and any signs of a slowdown could pressure the GBP. However, stronger than expected economic data would be very positive for the currency.
The Spring forecast, which will take place on Wednesday 26 March 2025, could impact the GBP. Overall, while February has been a solid month for the GBP, geopolitical undertainty and the pressure on the UK government could result in some uncertainty and a decline in the currency.
Key Levels
- EURGBP: Higher – 0.4500, Lower – 0.8200
- GBPUSD: Higher – 1.2800, Lower – 1.2400
Japanese Yen (JPY)
The yen’s strength in February was primarily driven by expectations of BOJ rate hikes and safe haven demand amid geopolitical concerns. While the rally has paused over the last few sessions, further expectations of rate hikes by the BoJ could fuel further strength in the currency in March.
Technically, looking at the USDJPY daily chart, it is easy to see that the recent downtrend remains intact.
Key Levels
- USDJPY: Higher – 152.00, Lower – 146.70
- EURJPY: Higher – 160.00, Lower – 152.00
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