Key takeaways
- The USD no longer exhibits a premium amid trade policy uncertainty
- But this creates asymmetric USD upside around upcoming tariff deadlines
- The CAD and EUR look vulnerable to renewed concerns about US trade policy
Our tactical view
Table of tactical views where a currency pair is referenced (e.g. USD/JPY):An up (⬆) / down (⬇) / sideways (➡) arrow indicates that the first currency quotedin the pair is expected by HSBC Global Research to appreciate/depreciate/track sideways against the second currency quoted over the coming weeks. For example, an up arrow against EUR/USD means that the EUR is expected to appreciate against the USD over the coming weeks. The arrows under the “current” represent our current views, while those under “previous” represent our views in the last month’s report.
USD
We incorrectly assumed a month ago that the USD would retain its premium amid trade policy uncertainty, but the absence of the premium creates asymmetric USD upside around upcoming tariff deadlines over the coming weeks. For example, a further delay in the imposition of tariffs on Canada or Mexico on 4 March might see a slightly weaker USD. But if 25% tariffs are imposed, the USD would likely surge higher. On top of tariff developments, markets may focus on US PCE for January (28 February), non-farm payroll report for February (6 March) and February CPI data (12 March), ahead of the Federal Reserve’s 18-19 March meeting. The Fed is likely to keep its policy rate unchanged, but a new round of median interest rate projections (known as “median dots”) and fresh guidance from Fed Chair Powell (post the 4 March tariff deadline) could be critical in setting the tone for the USD, one we expect to be bullish.
Short-term direction : DXY^
Current
▲ Appreciate
Previous
▲ Appreciate
EUR
EUR-USD is back close to the highs seen in January, as markets appear to assume no escalation in US-EU trade tensions and helpful German politics. The prospect of peace talks in the Ukraine/Russia conflict has already proved supportive for the EUR. But the EUR is likely to face downside risks over the coming weeks, as a lot of ‘good news’ is in the price. In addition, the European Central Bank (ECB) is expected to deliver a 25bp cut on 6 March, and there is currently a 60% probability attached to a follow-up cut in April. As the Eurozone still faces a challenging growth-inflation mix, one could argue for more ECB easing.
Short-term direction : EUR-USD
Current
▼ Depreciate
Previous
▼ Depreciate
GBP
Monetary, fiscal and trade policies all pose downside risks to the GBP over the coming weeks. While the Bank of England (BoE) is unlikely to deliver a 25bp rate cut at its 20 March meeting, the market is priced for only c50bp of easing by the end of the year (Bloomberg, 20 February 2025). With a softening labour market, the GBP is likely to face an asymmetric downside risk via the rate differential channel. UK Chancellor Rachel Reeves will present her Spring Statement on 26 March, including updated forecasts, which may squeeze the UK government’s fiscal headroom, likely hurting the GBP. Despite ebbing tariff concerns, global risks remain a threat to the GBP.
Short-term direction : GBP-USD
Current
▼ Depreciate
Previous
▼ Depreciate
JPY
The JPY is likely to hold steady against the USD over the coming weeks, buoyed by its ‘safe haven’ status amid external developments. Domestically, 10-year government bonds continue to rise, supporting the case for further rate hikes by the Bank of Japan (BoJ) this year, but the BoJ hike is unlikely to come on 19 March. The market is priced for one 25bp hike (by September) and a 60% chance of a second 25bp hike before the end of the year (Bloomberg, 20 February 2025). However, USD-JPY looks a little stretched relative to its yield differential, limiting room for the JPY to strengthen further from here. We await news on whether the Government Pension Investment Fund (GPIF) will boost its holdings of domestic assets.
Short-term direction : USD-JPY
Current
▶ Track Sideways
Previous
▲ Appreciate
CHF
Risk appetite and rates remain the drivers of the CHF. It is unclear whether market optimism on external events, like delayed US tariffs and a peace deal in Ukraine, will remain in play. The more likely factor to drive USD-CHF higher remains monetary policy. The Swiss National Bank (SNB) is expected to deliver 25bp cut at its 20 March meeting, with c85% priced by the market (Bloomberg, 20 February 2025). A dovish SNB guidance could weigh on the CHF. Markets may eye on the February CPI print (5 March) for clues.
Short-term direction : USD-CHF
Current
▲ Appreciate
Previous
▲ Appreciate
CAD
USD-CAD has moved lower than what its rate differential has implied, which is peculiar given the still looming threat of 25% US tariffs on 4 March. There could still be another delay, in which we could see a small CAD rally against the USD. But if 25% tariffs are imposed, including those on steel and aluminium announced on 10 Feb, USD-CAD would likely surge higher. The CAD may also come under pressure from a dovish Bank of Canada (BoC) and there is a c20 % chance of a 25bp cut on 12 March. Markets will also eye domestic data including Canadian GDP data (28 February) and labour market data (7 March).
Short-term direction : USD-CAD
Current
▲ Appreciate
Previous
▲ Appreciate
AUD
We extend our tactically optimistic stance on AUD-USD into early March. But uncertainty could quickly ramp up afterwards, as the net impact of China’s fiscal agenda, US policy, local politics, and risk appetite is uncertain. The Reserve Bank of Australia cut its policy rate by 25bp to 4.10% on 18 February, and our view remains that the terminal rate differential will move in the USD’s favour over the medium term.
Short-term direction : AUD-USD
Current
▲ Appreciate
Previous
▲ Appreciate
NZD
NZD-USD could face some near-term upside risks into early March, but rate differentials are likely to favour the USD, with the Reserve Bank of New Zealand cutting its policy rate by 50bp to 3.75% on 19 February. Notably, RBNZ Governor Adrian Orr saw the recent NZD decline as a “welcome impulse” (Bloomberg, 19 February 2025). Uncertainty related to US tariffs and China fiscal policy is also high.
Short-term direction : NZD-USD
Current
▲ Appreciate
Previous
▲ Appreciate
Note: ^DXY = US Dollar Index, is an index (or measure) of the value of the USD against major global currencies, including the EUR, JPY, GBP,CAD, SEK and CHF. Source: HSBC
FX Data Snapshot
(from close on 22 January to 21 February*)
FX |
Spot |
200 dma |
1-month % change* |
Support |
Resistance |
|---|---|---|---|---|---|
| DXY | 106.63 | 104.95 | -1.33% | 105.42 | 108.00 |
| EUR-USD |
1.0476 | 1.0736 | 0.46% | 1.0386 | 1.0533 |
| GBP-USD |
1.2658 | 1.2788 | 2.49% | 1.2400 | 1.2788 |
| USD-JPY |
150.48 | 152.61 | -3.24% | 148.65 | 152.64 |
| USD-CHF |
0.8989 | 0.8829 | -0.78% | 0.8782 | 0.9050 |
| USD CAD |
1.4185 | 1.3898 | -0.96% | 1.4000 | 1.4350 |
| AUD-USD |
0.6389 | 0.6549 | 1.83% | 0.6200 | 0.6550 |
| NZD-USD |
0.5762 | 0.5962 | 1.46% | 0.5600 | 0.5930 |
Note: * as at 16:29 HKT on 21 February 2025
Source: HSBC, Bloomberg
Explanation of terms
Spot: Spot refers to the current market price of a currency pair that is important for immediate transactions.
200 dma: 200-day simple moving average numberrepresents the average price of an index or a currency pair over the past 200 days.
Support (S), Resistance (R):Support and resistance are significant previous lows and highs plus retracement levels, based on historical price patterns of anindex or a currency pair. Support is a historical price level where a downtrend of a currency pair paused due to demand for the first currency quoted in the pair increasing, while resistance is a historical price level where an uptrend of a currency pair reversed amid demand for the second currency quoted in the pair increasing.
HSBC Positioning Indices
Note: Priced as of market close 20 February 2025
Source: HSBC, Bloomberg
The indicators have been devised to track the net position of momentum traders, looking at hundreds of strategies, operating over many different time horizons. It considers time horizons of 5 days up to 260 days. An indicator level of +10 would indicate that the hundreds of different strategies have all lined up and gone long (i.e., buy the first currency quoted in the pair). Similarly, an indicator level of -10 indicates that all strategies are short (i.e., sell the first currency quoted in the pair).
Glossary
Dovish
Dovish refers to an economic outlook which generally supports low interest rates as a means of encouraging growth within the economy.
Hawkish
Hawkish is typically used to describe monetary policy which favours higher interest rates, and tighter monetary controls to keep inflation in check.
MoM / YoY
Month on month / Year on year
PMI
Purchasing Managers Index (PMI) is an indicator of economic health of the manufacturing sector (>50 represents expansion vs. the previous month).
IMM data
International Monetary Market (IMM) is a division of the Chicago Mercantile Exchange (CME) that deals with the trading of currencies and interest rate futures and options and the IMM data is part of the Commitments of Traders (COT) reports published by the U.S. Commodity Futures Trading Commission (CFTC). The IMM data provides a breakdown of each Tuesday’s open futures positions on the IMM. Speculative positions are a trader’s non-commercial positions (i.e. not for hedging purposes).
G10
G10 refers to the most heavily traded, liquid currencies in the world: USD, EUR, JPY, GBP, CHF, AUD, NZD, CAD, NOK, and SEK.
Fed / FOMC
Federal Reserve System (US’s Central Bank)/Federal Open Market Committee.
ECB
European Central Bank (Eurozone’sCentral Bank).
BOE
Bank of England (UK’s Central Bank).
BOJ
Bank of Japan (Japan’s Central Bank).
BOC
Bank of Canada (Canada’s Central Bank).
RBA
Reserve Bank of Australia (Australia’s Central Bank).
RBNZ
Reserve Bank of New Zealand (New Zealand’s Central Bank).
SNB
Swiss National Bank (Switzerland’s Central Bank).
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