February 2025 Market Roundup

• Written by: Ian Morley
• 28/02/2025

Monthly Market Update: February 2025

Currency Movements

US Dollar (USD)
The US Dollar remained firmly in control for much of February, driven by a combination of safe-haven flows and stronger-than-expected economic data. A string of hawkish comments from Federal Reserve officials, alongside Trump’s escalating trade tariffs, created persistent demand for the Greenback.
Mid-month saw a brief dip in USD as weaker-than-expected jobless claims and consumer confidence data raised concerns about economic resilience. However, these were offset by stronger inflation readings and a better-than-expected Q4 GDP revision, which supported expectations that the Fed would hold rates higher for longer.

British Pound (GBP)
Sterling started the month under pressure, with dovish comments from Bank of England members suggesting a more aggressive rate-cutting cycle may be needed to support growth. However, the Pound found some stability thanks to stronger-than-expected UK inflation, employment, and retail sales data.
GBP also benefitted from optimism around potential trade opportunities with the US following Prime Minister Starmer’s high-profile meeting with President Trump, despite broader global trade tensions.

Euro (EUR)
The Euro struggled throughout February, hit hard by weaker economic data from Germany and the wider Eurozone, alongside growing expectations of further European Central Bank rate cuts.
The single currency came under additional pressure following Trump’s announcement of 25% tariffs on European autos and other imports. Although there were brief spikes on better-than-expected German GDP and retail sales data, these gains were short-lived.

Canadian Dollar (CAD)
The Canadian Dollar faced significant headwinds in February, particularly after Trump confirmed sweeping 25% tariffs on Canadian exports and further duties on energy products.
Falling oil prices, driven by optimism over potential peace talks between Russia and Ukraine, added to CAD’s struggles. Despite stronger-than-expected Canadian employment data mid-month, the combination of trade risks and a dovish Bank of Canada outlook kept the Loonie under pressure.

Australian Dollar (AUD)
The Australian Dollar had a tough February, weighed down by mounting global trade tensions, softer-than-expected Australian economic data, and growing expectations of further Reserve Bank of Australia rate cuts.
The currency found little relief, even as China took steps to boost liquidity, with Trump’s renewed tariff threats on Chinese exports adding to the risk-off sentiment that dragged AUD lower.

Swiss Franc (CHF)
The Swiss Franc saw periods of strength driven by safe-haven flows amid global trade uncertainty and geopolitical concerns, particularly around US-China and US-Europe relations.
However, softer Swiss inflation data increased speculation that the Swiss National Bank could cut rates again later this year, capping some of the Franc’s gains.

Events Driving the Market

1. Trump’s Global Tariff Campaign
   Trump’s aggressive escalation of trade tariffs dominated the month’s headlines, with new duties imposed on Canada, Mexico, China, and the EU.
   The tariff threats created a risk-off environment for much of the month, boosting the USD and safe-haven assets like the CHF, while weighing heavily on risk-sensitive currencies such as the AUD and CAD. GBP and EUR also suffered due to fears of direct impacts on UK and EU exports.
2. Federal Reserve Policy & US Data
   The Fed maintained a cautious stance in February, with policymakers repeatedly stressing that they were in no rush to cut rates.
   Strong US inflation data, particularly Core PCE, alongside resilient employment and consumer spending figures, reinforced this hawkish stance.
   Markets ended the month pricing in fewer rate cuts than had been expected at the start of the year, further supporting USD strength.
3. Bank of England Policy & UK Data
   The Bank of England struck a more dovish tone, with several policymakers openly calling for faster rate cuts to support growth.
   However, stronger-than-expected UK inflation and retail sales figures challenged this narrative, creating some uncertainty around the exact timing and scale of future rate cuts.
   Prime Minister Keir Starmer’s positive trade discussions with President Trump also offered GBP some relative support.
4. European Economic Weakness & ECB Easing
   The Eurozone’s economic struggles became even more apparent in February, with weak consumer confidence, disappointing business sentiment, and falling inflation contributing to expectations of further ECB rate cuts.
   ECB President Lagarde continued to strike a cautious tone, but markets are now fully pricing in at least three rate cuts by year-end.
   The added pressure from Trump’s tariff threats further dampened investor confidence in the Eurozone outlook.
5. Commodities & Oil Price Volatility
   Oil prices fluctuated throughout February, initially gaining on supply disruptions before reversing lower as Russia and Ukraine signalled progress in peace talks.
   This volatility, combined with trade uncertainty and a dovish Bank of Canada, kept the Canadian Dollar under pressure despite otherwise decent economic data.

Market Outlook

As we move into March, trade tensions will likely remain a key driver for global currency markets, with the US Dollar expected to retain its safe-haven appeal if uncertainty persists.
The Pound’s near-term outlook hinges on incoming UK data, particularly inflation and employment figures, as well as any further guidance from the Bank of England on the pace of rate cuts.
The Euro remains vulnerable to further weakness if Eurozone data continues to disappoint and ECB officials reinforce expectations of aggressive easing.
Commodity currencies like the CAD and AUD are likely to stay under pressure unless trade tensions ease and global growth prospects improve.
Overall, central bank policy divergence, geopolitics, and trade risks are set to keep volatility elevated in the month ahead.