FOREX: EUR/USD Stretches to New High Through London Close

• Fed Funds implied rates hold most of their decline with the dust settled on the ISM manufacturing survey, which firmly contradicted the “noticeable upturns in both production and new orders” seen in the US S&P Global PMI.
• Whilst a cut on Mar 19 is still seen as firmly off the table, there is now 9.5bp of easing priced for March (+2bp post-ISM) whilst the 67bp of cuts for 2025 (+3bp) is back close to last week’s recent dovish extremes of 70bps.
• For recent context, 2025 cut expectations have ranged from 25bp after the January CPI report on Feb 12 and pricing is back close to levels prior to the hawkish Dec 18 FOMC decision which includes a dot plot with a median 50bp of cuts for the year. 

SEK has seen a fresh wave of buying interest over the past ~60 minutes, helping NOKSEK push through key multi-year support at 0.9500, now 1.1% lower today at 0.9462. A close below 0.9500 would be an important bearish development and expose the November 2020 low at 0.9274 as the next downside target.

• The 0.9500 level has capped downside in the cross three times since mid-2023, while also providing support back in 2016.
• EURSEK is also through the Feb 22nd 2024 of 11.1385, exposing the December 2023 low at 11.0030.
• There hasn’t been an obvious headline trigger for the latest wave of SEK strength, though Bloomberg did run a piece on the role of increased defence spending prospects in supporting the krona at 1440GMT: {NSN SSCBLZDWRGG0 <GO>}
• While we sympathise with the argument that Sweden’s economy and the krona can benefit from increased Eurozone defence spending (Swedish defence exports as a % of nominal GDP are higher than the likes of France, Germany, the UK and the US according to data from the UK Govt and the IMF), it’s worth noting that a similar argument could also be made for Norway – see chart. That fact hasn’t provided a similar tailwind to the NOK today.
• Today’s 11% rally in Saab shares on the OMX30 has been joined by a 16% rally in Kongsberg Gruppen shares on Oslo Børs.
• The next key Swedish data release is February flash inflation on Thursday, particularly following the much stronger than expected January reading.  

US Commerce Secretary Howard Lutnick told CNN that President Donald Trump will make a final determination on Canada/Mexico tariffs today, ahead of an announcement tomorrow. Lutnick's comments suggest last-minute negotiations could lead to another delay to the tariffs. 

• Lutnick said Canada and Mexico, "have done a good job on the border" but indicated they may have to do more to tackle Fentanyl. "Trump will have to decide on tariffs Monday afternoon... we'll put it out Tuesday," he added. 
• Lutnick told Fox yesterday that "[Trump's] sort of thinking about right now how exactly he wants to play with Mexico and Canada, and that is a fluid situation. There are going to be tariffs on Tuesday on Mexico and Canada. Exactly what they are, we're going to leave that for the president and his team to negotiate,"
• This morning, White House trade adviser Peter Navarro, representing the most hawkish wing of Trump's team, downplayed the inflationary consequences of tariffs. He said he doesn't see Trump "wavering" on tariffs but declined to mention Canada or Mexico specifically.
• Bloomberg noted on Sunday: “The tariffs may yet be delayed ... but any reprieve could prove temporary, with a host of other Trump levies due in April.”
• Politico writes: “One theory is that Trump will cite the recent extraordinary collapse in illegal migration numbers as evidence his hard-hitting border policies are working — and claim the ax he left hanging over America's neighbors has played its part.”
• Trump said on Truth Social yesterday: “ILLEGAL BORDER CROSSINGS LAST MONTH WERE THE LOWEST EVER RECORDED. THANK YOU!!!”