Synopsis:

HSBC remains bullish on the USD, citing multiple geopolitical, trade, and economic risks that could drive demand for the greenback. With US trade deadlines, an upcoming ECB meeting, and key economic data releases, USD strength remains the dominant risk.

Key Drivers of USD Strength:

1️⃣ Geopolitical Uncertainty 🌍

• The tense meeting between Trump and Ukraine’s Zelenskiy has had limited FX impact so far, but uncertainty remains high.
• US foreign policy shifts could further increase risk aversion, benefiting USD as a safe-haven currency.

2️⃣ US Trade Policy Deadlines Looming 📉

• The March 4 deadlines for Canada, Mexico, and China tariffs could cause FX volatility.
• If Trump confirms new tariffs, it could pressure risk-sensitive currencies (CAD, MXN, CNY) and drive USD demand.

3️⃣ Key US Economic Data This Week 📊

• Strong economic releases could reinforce USD strength if they reduce Fed rate cut expectations.
• Friday’s US employment report will be closely watched for labor market strength.

4️⃣ ECB Rate Decision on Thursday 💶

• The ECB is expected to cut rates, but if Lagarde signals further dovishness, it could weigh on the EUR and support USD upside.

5️⃣ Market Positioning Still Favors USD 📈

• Despite some recent USD consolidation, HSBC sees the broader risks tilted towards renewed USD gains.

Conclusion:

With trade uncertainty, geopolitical risks, key economic data, and an ECB decision ahead, HSBC believes the balance of risks remains in favor of further USD strength. The USD remains asymmetrically positioned for gains, particularly if tariff risks escalate or US data outperforms expectations.