As we begin the week, markets are treading water, with currencies showing modest movements following Friday’s close.

Market Overview

• EUR/USD: Up 0.11%, reflecting initial optimism after the German election results.
• GBP/USD: Also up 0.11%, supported by stubborn UK inflation.
• USD/CAD: Down 0.1%, hovering around 1.42%, with little movement so far.
• USD/JPY: Up 0.38%, reflecting continued dollar strength.

German Election Recap

• The CDU/CSU bloc won the German election with 28.6% of the vote.
• While the election brought some initial relief, the focus now shifts to coalition formation and policy clarity.
• EUR/USD saw a small rally on the news, but those gains have since faded.

Sterling Holds Firm on Interest Rate Support

• GBP/USD remains around the 1.26 handle, finding support as UK inflation remains stubborn.
• Higher inflation expectations reinforce rate differentials, keeping Sterling relatively supported.
• Bank of England speakers today may provide further insight into rate policy.

Looking Ahead

• Markets remain cautious, with German coalition negotiations and global inflation concerns driving sentiment.
• Potential tariff developments:
  • The March 1st deadline for potential U.S. tariffs on Canada and Mexico looms, and markets are on alert for any policy updates or statements from the Trump administration.
  • Any indication of tariff implementation or delay could impact USD/CAD and broader risk sentiment.
  • Expect increased messaging this week as we approach the deadline, which could fuel volatility in trade-sensitive currencies.
• All eyes will be on central bank commentary and incoming economic data for further direction.

Conclusion

With a busy week ahead, market participants will be closely monitoring economic developments, central bank guidance, and any new comments on trade policy. As currency markets remain in tight ranges, any policy shifts or data surprises could shake up sentiment.