- White House announces tariff exemptions for Canada and Mexico
- Soft ADP jobs report poses downside risks to NFP
- Euro extends rally ahead of ECB decision
- Wall Street rebounds, WTI triggers buy orders below $67
Dollar Extends Slide Despite Tariff Exemptions
The US dollar continued falling against its major counterparts on Wednesday, although the White House walked back some of Trump’s tariff announcements. The US government announced that they will exempt automakers from the 25% levies on Canada and Mexico, while reports later in the day suggested that US President Trump is considering exempting agricultural products as well.
The reason why traders continued to sell their dollars is not crystal clear. Perhaps they are struggling to believe that the exemptions will lead to some sort of deal. They may be thinking that eventually levies will be imposed on the exempted products as well.
What may have also discouraged dollar traders from initiating long positions was the weaker-than-expected ADP report for February. The data showed that the private sector gained only 77k jobs, which is the slowest increase in seven months, raising concerns that Friday’s official employment data will come in weak as well.
Some weakness in government payrolls may be expected due to Elon Musk’s Department of Government Efficiency (DOGE) cutting federal jobs.
However, if the slowdown in the private sector revealed in the ADP report is confirmed in Friday’s data, then the dollar may extend its fall as more traders become convinced that the Fed will lower interest rates by more than 50bps by December.
Euro Cheers Germany’s Debt Verdict, ECB Decision Looms
The euro was the main gainer, climbing to a four-month high against the US dollar, driven by the surge in European bond yields after the parties discussing to form a governing coalition in Germany agreed to loosen borrowing rules.
Today, traders of the shared currency may lock their gaze on the ECB decision. At its latest gathering, the ECB cut interest rates by 25bps but gave no clear signals about the future pace of easing, allowing investors to continue penciling in around 70bps worth of additional reductions by the end of the year.
Another 25bps reduction is largely expected today and thus, if this is the case, traders may quickly turn their attention to hints and clues about the Bank’s future plans. That said, with Monday’s data revealing that inflation was stickier than expected in February, policymakers may prefer to stick to their meeting-by-meeting approach, which may allow the euro to extend its gains.
Stocks and Oil Rebound After New Tariff Delays
All three of Wall Street’s main indices rebounded yesterday, each gaining more than 1% as stock investors cheered the prospect of easing trade tensions between the US and its main trading partners. The better-than-expected ISM non-manufacturing PMI may have also helped.
Having said that though, although it is still early to call for a full-scale bearish reversal in stock indices, the uncertainty and unpredictability surrounding Trump’s next steps does not ensure uptrend resumption and smooth sailing either.
Oil prices tumbled on Wednesday, with WTI dropping below the key support zone of $67 and hitting levels last seen back in May 2023. Perhaps the drop was the result of concerns about tariffs hurting global oil demand and/or a response to the larger-than-expected US crude oil inventories for last week.
Oil rebounded following the tariff exemptions announcements but the uncertainty about the US’s trade policy and a rising supply outlook are likely to keep the gains in check.