Economic Update

Trump’s tariffs struck down by Supreme Court as markets await the next iteration

US data released last week continued to offer mixed signals. Industrial production, the core PCE price index and housing starts all strengthened, while GDP and PMI readings softened. Markets then ended the week digesting the more consequential development: the US Supreme Court ruled 6–3 that the President had exceeded his powers under the International Emergency Economic Powers Act when imposing certain tariffs.

Shortly afterwards, the administration announced plans for a global 10% tariff and indicated that several existing trade agreements may be revisited. Market reaction remained uncertain, although the USD edged lower. The decision raises several questions, including whether previously collected tariff revenues could be returned and whether the upcoming USMCA review will gain additional significance for policymakers. It could also place the administration’s proposed tax rebate plans under renewed scrutiny.

This week’s calendar includes the Conference Board’s consumer confidence survey for February and January’s PPI figures. Numerous Federal Reserve members are also scheduled to speak, although none appear likely to signal an imminent rate cut given persistent inflation pressures. Overall, the uncertainty surrounding a new tariff regime could weigh on the USD, although the broader outlook for the US economy and interest rates remains largely unchanged. The State of the Union address may provide more detail on the administration’s fiscal intentions.

UK set for a quieter week following a volatile run of data

Last week’s UK data delivered contrasting messages. Labour market indicators for December softened, and both headline and core inflation slowed in January, strengthening the case for further Bank of England rate cuts. However, retail sales volumes for January exceeded expectations and public finances recorded a notable surplus.

A closer look suggests the stronger data may not shift the policy outlook meaningfully. Retail sales were driven by jewellery, art and antiques — categories that do not typically reflect broader consumer momentum. Meanwhile, the public finances improved due to an unexpected fall in debt interest payments and a surge in capital gains tax receipts ahead of changes scheduled for FY 26/27. These factors make the headline figures less indicative of underlying economic strength.

Construction activity also appeared to rebound in provisional PMI data after a prolonged period of weakness. Even so, the broader outlook for the UK economy remains subdued.

This week brings little in the way of domestic data or scheduled speeches. The by‑election in Gorton and Denton on Thursday may dominate political coverage. With a close three‑way race between Reform, the Greens and Labour, the vote could prompt questions about recent economic developments and their political implications. Sterling may also remain sensitive to broader shifts in sentiment.

Euro Area turns to survey data for additional clarity

Euro Area sentiment indicators take centre stage this week. Germany’s IFO business climate survey for February showed an improvement in both current conditions and expectations, although the recovery began from historically low levels. The figures followed similar improvements in provisional PMI data.

Later in the week, markets will receive French manufacturing and business confidence readings, French and Italian consumer confidence surveys and the Euro Area’s composite measures of economic, industrial and services confidence.

The EUR may focus less on the data and more on scheduled remarks from ECB President Christine Lagarde, given recent speculation about her future ahead of French presidential elections next year. EURUSD briefly dipped below 1.18 last week and, although stable for now, could face renewed pressure if surveys disappoint or if further political headlines emerge from either side of the Atlantic.

Could CAD GDP surprise to the upside as markets watch US developments? Mexico’s employment trend remains supportive

Canada’s Q4 GDP figures are due on Friday. After a strong rebound in Q3, consensus expectations suggest marginal contraction in Q4 as economic activity softens. With few domestic drivers this week, markets may pay closer attention to US developments, including the State of the Union address. The upcoming six‑year USMCA review and last week’s Supreme Court ruling on US tariff powers have increased uncertainty around future trade policy, which remains central for Canada.

The CAD continues to consolidate, and the broader outlook is no longer one of steady recovery against the USD. However, Canada’s recent labour market improvement could support relative performance versus the GBP and EUR.

In Mexico, focus will fall on revised Q4 GDP data and January unemployment figures. Any revision to GDP may lean to the upside, while unemployment is expected to rise slightly from December. Seasonal factors may play a role, and the broader trend still points to gradual improvement. This continues to offer support to the MXN, and multi‑quarter lows in USDMXN could be retested this week.