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This week witnessed a dramatic reshuffling of the global financial landscape, marked by the US dollar’s sharp decline, the euro’s remarkable ascent, and a notable divergence in fortunes between the British pound and the FTSE 100. A confluence of economic data, policy shifts, and trade uncertainties fueled unprecedented volatility across currency and equity markets.
The week’s events highlighted the interconnectedness of global financial markets and the significant impact of economic data, policy shifts, and trade uncertainties. Market participants will closely monitor upcoming economic indicators and policy decisions for further clues about the direction of global markets.
Dollar’s Historic Weakness:
The US Dollar Index (DXY) suffered its worst weekly performance in over a year, plunging by more than 3.5%. This dramatic drop was triggered by a combination of factors: disappointing US economic data, evolving Federal Reserve policy expectations, and renewed trade anxieties.
February’s Nonfarm Payrolls report fell short of market forecasts, revealing a weaker-than-expected job market. Nonfarm Payrolls (NFP) in the US rose by 151,000 in February, the US Bureau of Labor Statistics (BLS) reported on Friday. This reading followed the 125,000 increase (revised from 143,000) recorded in January and fell short of the market expectation of 160,000. Unemployment Rate edged higher to 4.1% from 4% in January, while the Participation Rate declined to 62.4% from 62.6% in the same period. Finally, the annual wage inflation, as measured by the change in the Average Hourly Earnings, rose to 4% from 3.9% (revised from 4.1%).
The unemployment rate also ticked upwards, and wage growth slowed, reinforcing concerns about a potential economic slowdown. These figures strengthened market expectations of imminent Federal Reserve rate cuts.
Adding to the dollar’s woes, Federal Reserve officials hinted at multiple rate cuts in 2025, and the CME FedWatch Tool now indicates a rising probability of a June cut. However, Federal Reserve Chair Jerome Powell cautioned that policy uncertainties complicate the central bank’s ability to navigate the economic landscape.
Furthermore, President Trump’s hints of new tariffs on Canada introduced fresh trade uncertainties, contributing to a risk-off sentiment and intensifying capital outflows from the dollar.
Euro’s Remarkable Surge:
In stark contrast, the euro experienced its best weekly performance against the dollar in 16 years. This surge was primarily driven by Germany’s bold fiscal reforms, which signaled a significant shift in European economic policy. Germany’s decision to abandon fiscal constraints in favor of increased spending to stimulate growth attracted significant investor interest.
The euro’s ascent was further fueled by the European Central Bank’s hawkish rate stance and the surge in European bond yields following Germany’s spending proposal. The dollar, meanwhile, “fallen out of favour” amid US trade uncertainties.
Some economists described the week as a “watershed moment,” signaling the end of “dollar and U.S. growth exceptionalism.” Investors actively “bought dips in euro/dollar,” anticipating further upward momentum.
Pound Surges, FTSE 100 Slumps:
The British pound also experienced a significant surge, achieving its best weekly performance since November 2022. This rally was propelled by a destabilized US dollar, although it did not benefit as much as the euro from the renewed European defense spending push. The week saw a historic shift in European bond pricing, impacting UK gilts, which saw their benchmark yield rise the most since January’s selloff. Despite a slight recovery today, this adds to the government’s challenges in balancing borrowing and spending. Minutes released from a recent meeting indicate the Chancellor’s commitment to fiscal rules.
Conversely, the FTSE 100 experienced its worst weekly performance of the year, losing some of its appeal as a value play in contrast to European counterparts. While closing relatively unchanged today, the index’s overall weekly decline reflects a shift in investor sentiment, with European markets proving more attractive.
Broader Market Reactions:
The dollar’s weakness triggered reactions across other markets. Safe-haven currencies like the Japanese yen and Swiss franc strengthened, reaching multi-month highs. In Asia, the offshore yuan remained stable despite concerning Chinese trade data, and the risk-sensitive Australian dollar experienced a slight decline.
In the cryptocurrency market, Bitcoin saw a temporary dip following news of President Trump’s executive order regarding a strategic Bitcoin reserve. However, this decline was attributed to the lack of mandatory Bitcoin purchases within the order.
Crude Oil and Gold’s Winning Week:
Oil prices saw a daily increase on Friday, with West Texas Intermediate (WTI) crude for April delivery rising by 68 cents, or 1%, to settle at $67.04 a barrel. May Brent crude, the global benchmark, climbed 90 cents, or 1.3%, to $70.36 a barrel. This daily upward movement was fueled by reported U.S. plans to refill its Strategic Petroleum Reserve (SPR), with reports indicating over 300 million barrels intended for the SPR, and potential OPEC+ adjustments to production. Additionally, the U.S. plans to seek up to $20 billion to refill the SPR, according to Energy Secretary Chris Wright.
However, despite Friday’s gains, both U.S. and global crude benchmarks ended the week lower. WTI crude saw a 3.9% weekly decline, marking its seventh consecutive weekly loss, the longest such streak since December 2023. Brent crude fell by 3.4% for the week. Natural gas for April delivery settled at $4.40 per million British thermal units, up 2.3% Friday to end 14.7% higher for the week. The weekly decline was primarily driven by concerns that tariffs will slow the economy and energy demand.
Gold prices experienced a resurgence this week, reversing the previous week’s decline and reigniting bullish sentiment among market participants. After starting the week at $2,858 per ounce, spot gold quickly established a support level around $2,860 before climbing steadily. A significant surge on Tuesday evening propelled gold prices above $2,900, with the metal briefly touching $2,927. Throughout the rest of the week, gold maintained a relatively narrow trading range between $2,900 and $2,926, ultimately closing at $2,911 per ounce on Friday.
The gold market also saw a strong return of bullish sentiment, with two-thirds of both industry experts and retail traders predicting higher gold prices in the coming week. Analysts cited various factors contributing to this optimism, including economic uncertainties, persistent inflation concerns, and ongoing geopolitical instability. Several experts highlighted gold’s resilience in the face of recent market volatility and anticipated a renewed push towards all-time highs, with some even suggesting a potential test of the $3,000 per ounce level.
The Week Ahead:
The week of March 10-14, 2025, is poised to be a pivotal period for global financial markets, with a concentration of key economic data releases and central bank activity. Foremost among these events is the release of U.S. inflation data, encompassing both the Consumer Price Index (CPI) and the Producer Price Index (PPI). These figures are critical in assessing inflationary pressures within the U.S. economy and will significantly influence the Federal Reserve’s monetary policy decisions. Central bank actions will also be in sharp focus, with the Bank of Canada’s interest rate decision anticipated to generate considerable market movement, particularly affecting the Canadian dollar.
Additionally, statements and speeches from Federal Reserve officials will be scrutinized for insights into the trajectory of U.S. monetary policy. Beyond inflation and central bank activities, a range of economic indicators will provide further market direction. Japanese GDP data will offer a snapshot of Japan’s economic health, while the University of Michigan consumer sentiment index will gauge consumer confidence in the U.S. Furthermore, the UK monthly GDP data will provide insights to the UK’s economy.
A significant underlying theme will be the market’s reaction to recently implemented tariffs, with the data from CPI, PPI, and consumer sentiment reports serving as key indicators of their economic impact. Specifically, the calendar highlights Monday, March 10th, with the release of the final Japanese GDP estimate; Wednesday, March 12th, featuring the U.S. CPI release and the Bank of Canada’s meeting; Thursday, March 13th, with the U.S. PPI release; and Friday, March 14th, with the University of Michigan consumer sentiment index.
While these are the anticipated events, it is crucial to remain aware that economic calendars are subject to change, and unexpected developments can always occur. Therefore, continuous monitoring of reliable financial news sources throughout the week is strongly recommended.
