CAPITALDIGEST MARKET REVIEW, 10/03/2025

DOLLAR RISKS LOSING SAFE HAVEN STATUS, SAYS DEUTSCHE BANK

The dollar is at risk of losing its traditional status as a safe haven for global investors following a tariff backlash, a European banking giant has warned. said: “This needs to be acknowledged as a possibility” after the The concerns were shared in a note to clients by the bank’s global head of FX strategy George Saravelos, first reported by Bloomberg. The note said: “It is hard to over-estimate the scale of change taking place in global economic and geopolitical relations in a matter of days.” US stock market Dow Jones opened on a lull on Tuesday, losing as much as 664 points and continuing from Monday’s slump. This followed confirmation that President Trump’s 25 per cent tariffs on goods from Mexico and Canada had come into effect. A further 10 per cent was slapped onto Chinese products, ballooning China’s total import tax to 20 per cent. speed and scale of geopolitical uncertainty accelerated the dollar’s turmoil.

CANADIAN DOLLAR GAINS AS INVESTORS EYE TARIFF NEGOTIATIONS

The Canadian dollar strengthened against its U.S. counterpart on Wednesday, extending its rebound from a one-month low, as investors weighed prospects of Canada’s receiving some relief from U.S. tariffs. The loonie was trading 0.3% higher at 1.4350 to the U.S. dollar, or 69.69 U.S. cents, after trading in a range of 1.4341 to 1.4449. On Tuesday, the currency touched its weakest intraday level since February 3, at 1.4543.U.S. President Donald Trump told Canadian Prime Minister Justin Trudeau that he had not done enough to curb fentanyl smuggling in a phone call that did not appear to convince Trump to lift the punishing 25% duties on all imports from Canada and Mexico. But later in the day, The White House said that Trump will exempt automakers from the tariffs for one month as long as they comply with terms of an existing free-trade agreement between the three North American countries. “The negotiation aspect is where we are now,” said Amo Sahota, director at Klarity FX in San Francisco. “The market is trying to settle in and find out what the new normal is going to look like for the next few months.

STERLING EXTENDS DROP VERSUS EURO AFTER GERMAN FISCAL BOOST

The pound extended a slide against the euro on Thursday, dropping to its weakest level since January as the single currency benefited from an improving growth outlook after Germany announced plans to massively boost fiscal spending. Sterling was last at 83.85 pence per euro, down about 0.2% on the day. It’s dropped about 1.5% this week, and is on course for its biggest one-week fall since January 2023. “It’s all to do with the broad-based euro optimism that we’ve seen with this shift in fiscal policy in Germany,” said Kirstine Kundby-Nielsen, FX analyst at Danske Bank. On Tuesday, the parties looking to form the next government of Germany, Europe’s largest and the world’s third largest economy, agreed to loosen fiscal rules and create a 500 billion euro special fund to boost infrastructure. That sent the euro surging against major peers and pushed bond yields higher on expectations for more borrowing. Major investment banks have been quick to lift their growth forecasts for Germany and the euro zone bloc, while some now expect fewer interest rate cuts from the European Central Bank.

U.S. DOLLAR, BOOSTS SAFE-HAVEN YEN, SWISS FRANC

The dollar was softer on Monday and trading near its lowest level in four months against major currencies as concerns over a global trade war troubled investors, lifting safe havens the yen and the Swiss franc. Markets have been fixated on trade tensions as U.S. President Donald Trump slapped tariffs on top trading partners only to delay some of them for a month amid growing signs and fears of a U.S. economic slowdown. That has led to investors losing faith in the U.S. economy which has been outperforming its peers. On currency futures markets, investors have slashed net long dollar positions to $15.3 billion from a nine-year high of $35.2 billion in January. Risk-averse investors have sought the Japanese yen and Swiss franc instead sending both currencies to multi-month highs. On Monday, the yen was 0.25% firmer at 147.68 per dollar, just below the five-month high of 146.94 it touched on Friday. The Swiss franc hit a three-month high of 0.87665 per dollar on Monday. The euro was steady at $1.0842 after clocking its best weekly performance since 2009 last week boosted by Germany’s game-changing fiscal reforms. The dollar index, which measures the U.S. currency against six others, was last at 103.83 on Monday, stuck near a four-month low touched last week.

POUND HEADS FOR WORST WEEKLY RUN VERSUS EURO SINCE 2023

The pound headed for its worst weekly performance against the euro in over two years on Friday, as a boost to European spending drove a broad rally in the single currency, while against the dollar, sterling rose ahead of U.S. jobs data. The euro has surged across the board this week, logging its best weekly performance against the dollar since March 2009. Against the pound, it was set for a weekly gain of 1.5%, the most since January 2023.  It was last up 0.4% at 84.03 pence. The pound was up 0.4% against the dollar at $1.292. European leaders have rallied round Ukraine, with a view to reaching a peace deal, and pledged to spend more on their own defence in view of the shift in the U.S. stance under President Donald Trump. Spending of around $1 trillion, spurred by Germany’s overhaul of its fiscal rules to release funds for infrastructure and defence, as well as European Union efforts to increase its joint borrowing, have transformed investor sentiment. Equity investors have poured money in at the fastest rate in almost a decade and the euro has soared in response, bringing gains versus the pound to 1.2% so far this year and to 1.1% against the dollar. Sterling by contrast is up just 0.4% against the U.S. currency .