In the European session on Friday, GBP/USD is making notable strides toward the 1.2600 mark, reflecting a broader trend in currency markets influenced by U.S. economic policies and international trade dynamics. Meanwhile, the U.S. Dollar Index (DXY) was last observed hovering around the 107 level, showcasing a mixed sentiment among investors as they navigate the evolving landscape of global trade disputes.
President Donald Trump has recently signed an executive order to impose reciprocal tariffs, although these measures are slated to take effect only from April 1. This delay has bolstered the perception that tariffs are being used as a strategic bargaining tool in trade negotiations. The current administration has already imposed tariffs on certain trading partners, with expectations of further levies in upcoming quarters. Consequently, foreign retaliation is anticipated, which could potentially escalate tensions in international trade.
The Euro area reported a slight uptick in GDP growth, expanding by 0.1% in the fourth quarter, revising the previous estimate of no growth. This development comes as market participants shift their focus to the upcoming release of U.S. economic data, including Retail Sales and Industrial Production figures expected later tonight.
The delay in implementing tariffs has left USD longs wrongfooted, as markets had positioned for tariff-driven trades by increasing USD exposure. However, the repeated postponement has led to speculation that the Trump administration might not enforce tariffs as aggressively as initially feared.
"Markets have been positioning for tariff trade (i.e. long USD) but the repeated delay in tariffs seem to gradually build up expectations that Trump may not deliver tariffs as much as feared, depending on how trade negotiations go and if he gets any concession."
Originated from: Frances Cheung and Christopher Wong, OCBC's FX analysts
In currency markets, EUR/USD is trading positively above 1.0450 in the European session on Friday. This movement reflects broader market trends where investors are reassessing their positions amid uncertainties surrounding U.S. trade policies and their global repercussions.
The BNB price also witnessed an upward trajectory, trading around $680 after rallying nearly 11% this week, further illustrating volatile market conditions where digital assets continue to capture investor interest.
Analysts from OCBC highlight several technical factors affecting the DXY, noting bearish daily momentum and a decline in the Relative Strength Index (RSI). They identify key support and resistance levels that could influence future movements of the DXY.
"Daily momentum turned bearish while RSI fell. Risk remains skewed to the downside. Support at 106.20/40 levels (100 DMA, 38.2% fibo retracement of Oct low to Jan high). Resistance at 107.80 (23.6% fibo), 108.00/10 (21, 50 DMAs), and 108.50 levels."
Originated from: Frances Cheung and Christopher Wong, OCBC's FX analysts
Reflecting on the impact of reciprocal tariffs, these analysts also point out potential consequences for countries like Korea, India, Thailand, and Japan due to their higher weighted average tariff rates imposed on U.S. goods.
"With regards to reciprocal tariffs, we have earlier highlighted that Korea, India, Thailand and Japan impose a higher weighted average tariff rate than the US does on these countries. Reciprocal tariff rate adjustments from US may potentially impact these countries more."
Originated from: Frances Cheung and Christopher Wong, OCBC's FX analysts