FX volatility levels are drifting toward the lower end of two-month ranges as major FX pairs consolidate. The tariff threat remains real, although it is having a diminishing impact on markets, ING’s FX analysts Chris Turner notes.

FX market doesn't believe in tariff talks without tariffs

"President Trump's threat yesterday that the EU (some sectors or the whole bloc?) would be hit with 25% tariffs in April only saw EUR/USD come off 20-30 pips. The FX market now sees a familiar pattern with the threat, and then the deadline subsequently being pushed back. That was on show yesterday with the presumed 4 March deadline for Canada and Mexico to tighten borders being pushed back into early April. In a way, the FX market will now only believe tariffs when they see them."

"On the other side of the Atlantic, European asset markets are performing well. Equity benchmarks are touching their highs of the year and we're certainly seeing Ukraine-related markets, such as CEE currencies, Ukraine Eurobonds all bid and European gas prices offered. There must be speculation that Friday's signing of a US-Ukraine mineral deal will ultimately lead to security guarantees and a ceasefire. Of course, this is far from guaranteed."

"Within those two defining factors sit internal US developments. We've seen the USD hit recently on weakness in the US consumer. And a jump today in the US weekly jobless claims data is probably the biggest risk to the dollar in the very short term. The 4Q24 US GDP revision probably won't be much of a market mover. There will also be a continuing focus on the efforts of Elon Musk to trim the US government."