Markets remain tense as former U.S. President Donald Trump reiterated that tariffs on Mexico and Canada are still under consideration, with a decision expected by next Monday. Despite the looming deadline, investors have yet to fully price in the risks, although currency markets may react more sharply as the week progresses.

“The dollar found firmer ground at the start of the week, gaining additional support in late European trading hours after Trump stated that tariffs on Canada and Mexico are moving forward,” noted ING strategists led by Francesco Pesole.

The proposed 25% duties were initially delayed in early February, postponing the decision to March 3. ING suggests that Trump may be using the tariff threat as a negotiating tool until the last moment, similar to his approach in February.

“Our base case remains that 25% tariffs on Mexico and Canada won’t materialize, and markets are only pricing in a modest risk of that happening,” ING strategists added.

As the week progresses, the foreign exchange (FX) market may take the threat more seriously, with USD/CAD and USD/MXN facing potential near-term upside risks.

Focus on U.S. Economic Data

Attention is now focused on important U.S. economic indicators, particularly the Conference Board’s consumer confidence report released today, which is expected to affect market sentiment. After a surge in November following the election, the index has shown signs of weakening. Consensus forecasts predict a drop from 104.1 to 102.5.

A sharper drop toward 100 could trigger a stronger market reaction. Additionally, the Richmond Fed indices will provide further insights into economic momentum following weaker-than-expected regional activity readings from the Chicago and Dallas Fed surveys.

ING suggests that the dollar’s direction today will largely depend on further tariff-related comments from Trump or other U.S. officials. “Absent new remarks, and given the market’s tendency to call the bluff on tariffs, we believe the dollar could edge lower today if consumer confidence disappoints,” Pesole and his team wrote.

A weaker report would heighten concerns about slowing consumption and could lead to a more dovish repricing of Federal Reserve expectations.

Eurozone Outlook

In the eurozone, markets are monitoring the European Central Bank’s (ECB) latest data on negotiated wage growth, though ING does not expect it to impact monetary policy. Wages rose 5.4% year-over-year in Q3, but much of the increase was driven by one-off payments.

The ECB remains focused on broader wage trends, and with recent indicators suggesting a slowdown, the central bank is unlikely to adjust its stance. ING sees limited upside for the euro, forecasting EUR/USD to test 1.050 in the short term before trending lower toward 1.030.