Although Trump imposed a 25% tariff on all steel and aluminum into the US, and both Europe and Canada retaliated with some modest tariffs on US goods, the other news for tariffs was relatively limited.

Tomorrow, Commerce Sec. Lutnick will be meeting with Canadian officials to further discuss USMCA and what the tariff situation might look like. Trump also expects to announce tariffs on autos and auto parts which would impact both Europe and Canada. Those are expected to go into effect on April 2.

US CPI came in better than expected. The February CPI report showed a continued cooling in inflation, with both headline and core CPI coming in below expectations (0.2% for each vs 0.3% estimate). Headline inflation rose 3.2% y/y, in line with forecasts but down from 3.3% prior, while monthly CPI increased by 0.2%, the lowest since October. The core CPI, which excludes food and energy, came in at 3.1% y/y vs. 3.2% expected, marking the lowest level since 2021, with monthly core inflation also slowing to 0.2%.

The data suggests inflationary pressures are easing, though certain components remain sticky. Shelter costs rose 0.3%, accounting for nearly half of the monthly price increase, reinforcing its role as a persistent inflation driver. However, this was partially offset by a 4.0% drop in airline fares and a 1.0% decline in gasoline prices, helping to temper overall price gains. Core services inflation increased by 0.252%, but services ex-shelter slowed notably to 0.3% vs. 0.757% prior, signaling a broader moderation in price pressures.

On the wage front, real weekly earnings improved slightly to +0.1%, reversing the prior -0.3% decline, suggesting that while inflation is softening, wage growth is not yet translating into significant real income gains. The report reinforces expectations that the Federal Reserve may be nearing a turning point on policy, as inflation trends move toward the Fed’s 2% target, though the persistently high shelter costs remain a key factor to monitor.

Tomorrow US PPI will be released tomorrow with the expectations of 0.3% for the headline and the core measures. The combination of the CPI and the PPI will give the number crunchers a view of the PCE numbers for February scheduled to be released later this month.

The other key event today was the Bank of Canada rate decision. The BOC cut its key policy rate by 25 basis points to 2.75% (as expected), citing concerns over inflationary pressures and weaker growth due to trade uncertainty and U.S. tariffs. The central bank emphasized a cautious approach to future rate decisions, balancing the upward pressure on inflation from higher costs against the downward pressure from weaker demand. The cut marks the seventh consecutive rate cut, totaling 225 basis points in nine months, making the BoC one of the most aggressive central banks globally.

Governor Tiff Macklem acknowledged the economic uncertainty, highlighting the impact of President Trump's 25% tariffs on steel and aluminum and Canada's C$29.8 billion in retaliatory tariffs. He warned that a prolonged trade war could slow GDP growth, weaken the job market, and push inflation higher, creating a difficult policy environment. Inflation is projected to reach 2.5% in March, up from 1.9% in January, partly due to the expiration of a sales-tax break.

Currency markets are currently pricing in a 45% chance of another 25 basis point cut at the next BoC meeting on April 16.

Despite the cut and concerns about the impact of tariffs, the USDCAD is ending the session lower (higher CAD) after a try higher could not muster much momentum buying. Looking at the hourly chart, the price fell below the 200 and 100 hour MAs at 1.44026 and 1.4390 toward the end of the morning session and remains below those MAs into the close today. On the downside, trading below the 50% of the move up from the February low at 1.4345 would increase the selling momentum in the new trading day.

USDCAD

The U.S. Treasury sold $39 billion in 10-year notes at a yield of 4.310%, slightly below the 4.315% WI level and lower than the prior auction’s 4.632%. The bid-to-cover ratio improved to 2.59 from 2.48, indicating solid demand. This auction was a 9-year, 11-month note reopening, and some pre-auction selling pressure followed the cooler CPI report, leading to an adequate concession and a slightly stronger sale. While the lower yield could put downward pressure on USD/JPY, ongoing tariff concerns continue to keep markets on edge.

The dollar is ending the day with mixed results:

  • EUR, +0.28%
  • JPY, +0.36%
  • GBP, -0.12%
  • CHF, -0.10%
  • CAD, -0.44%
  • AUD, -0.33%
  • NZD, -0.26%

In the US debt market today, the yields are higher despite the better CPI data:

  • 2-year yield 3.990%, +5.0 basis points
  • 5-year 4.075%, +3.3 basis points
  • 10 year 4.316%, +2 point basis points
  • 30 year 4.634%, +3.1 basis points

Major US indices closed mixed on the day with the Dow industrial average lower and the S&P and NASDAQ indices higher. A snapshot of the closing levels:

  • Dow industrial average fell -82.55 points or -0.20% at 41350.93.
  • S&P index rose 27.23 points or 0.49% at 5599.30.
  • NASDAQ index rose 212.35 points or 1.22% at 17648.45
  • Russell 2000 rose 2.87 points or 0.14% at 2026.46.

The White House hit Europe with steel and aluminum tariffs today and the EU responded with a batch of worth 26 billion euros. Despite the tariffs, European equity markets were in a good mood aside from Spain.

  • Stoxx 600 +0.8%
  • German DAX +1.5%
  • France CAC +0.6%
  • UK FTSE 100 +0.4%
  • Spain IBEX -0.7%
  • Italy's FTSE MIB +1.6%

In other markets,

  • Crude oil is trading up $1.47 or 2.22% at $67.72
  • Gold is trading up $18.50 or 0.63% at $2933.70
  • Bitcoin is trading up $273 and $82,180
Source: Forex Live