The dollar weakened last week due to discouraging data and reduced expectations that US tariffs would be a long-term measure. Protectionism in the US is anticipated to influence markets, especially with the imminent deadline for tariffs on Canada and Mexico.
Soft US data may keep traders cautious, particularly ahead of key releases, such as the Conference Board consumer sentiment indicator. Recent trends indicate a negative shift in consumption as 2025 progresses.
The currency’s direction could fluctuate, impacted by geopolitical developments, including peace discussions between Russia and Ukraine. A potential tariff delay alongside a 0.3% MoM core PCE may bolster the dollar.
We saw the dollar struggle last week, weighed down by weak data and growing speculation that US tariffs may not be in place for long. Protectionist policies are now at the forefront, as markets focus on whether trade measures against Canada and Mexico will move forward when the deadline arrives. Uncertainty here has left traders hesitant, which could persist in the coming weeks.
With economic data out of the US showing weakness, there’s little reason to expect confidence to rebound just yet. Traders will be watching the upcoming consumer sentiment report carefully. If recent consumption trends are anything to go by, it wouldn’t be surprising if the figures disappointed. That said, any surprises to the upside could shake things up.
Geopolitical developments will remain key. Talks between Russia and Ukraine could push currency markets in either direction, depending on how negotiations unfold. Meanwhile, speculation around tariffs is far from over. If a delay in implementation is paired with a 0.3% month-on-month reading for core PCE, the dollar could find some relief. But whether that support would hold is another question entirely.
For those trading derivatives, these moving parts create both risks and opportunities. Weak data and shifting trade policies demand a close eye on sentiment indicators. At the same time, geopolitical news could increase volatility, making it critical to stay adaptable. Timing will be everything.
