As we wrap up another week, the U.S. dollar is slightly stronger across the board, with most major currencies seeing mild declines. Key highlights include:

Market Overview

• EUR/USD: Down 0.25%, continuing its recent softness.
• GBP/USD: Sterling is lower by 0.2%.
• USD/CAD: The Canadian dollar is slightly weaker, with USD/CAD up 0.1%.
• USD/JPY: The biggest mover today, up 0.5%, reflecting dollar strength.

Key Economic Events

• U.S. Michigan Consumer Sentiment & Inflation Expectations:
  • The five-year inflation expectations measure is expected to rise to 3.3% from 3.2%, a number that will be watched by the Fed for long-term inflation trends.
  • Any surprises here could influence interest rate expectations and dollar positioning.
• Fed Chair Jefferson Speaks Later Today:
  • Markets will be monitoring any signals on the Fed’s outlook, especially regarding inflation and potential rate moves.

Market Sentiment & Positioning

USD/CAD Short Positioning:

• While short CAD positions remain sizable, they are not as extreme as in previous weeks.
• Canadian Retail Sales data is out today, but its impact is likely to be muted.

Tariff Watch: March Deadline Looms (30-day Pause from Feb 4):

• Potential tariffs on Canada and Mexico are scheduled to take effect in early March.
• Expect increased messaging from the Trump administration over the weekend, which could drive FX volatility next week.

Geopolitical Risks:

• German Elections German elections take place this weekend, and while they may not cause immediate market moves, any major shifts in leadership could have implications for European markets.

Looking Ahead

With inflation expectations, Fed commentary, and tariff developments in focus, markets may remain cautious heading into the weekend. Next week could bring significant volatility, especially if the tariff situation escalates or U.S. economic data surprises.

As we head into the weekend after a cold week across North America, traders will be watching tariff developments, inflation trends, and Fed guidance to shape expectations for next week. Have a safe and restful weekend, and prepare for another potentially eventful trading week ahead!