REGISTER
LOGIN
Dollar dives on Day One as Trump shies away from trade tariffs
Updated Updated Mon, 2025 January 20 09:44
* Trump’s executive orders will focus on the border, energy
* USD tumbles, European stocks jump to fresh record highs on tariff delay
* Gold marginally higher on softer dollar after inauguration
* Bitcoin hits new all-time top at $109,358 before paring gains
FX: USD fell sharply on reports that new President Trump would not impose trade tariffs straight after his inauguration on day one. This was the key question for markets in the near term – broad, early tariffs or a targeted, ratcheting of tariffs. The dollar had been relatively fully priced with long positioning at levels last seen during the pandemic. The index had also suffered its first loss weekly since the start of December. Initial support sits at 107.75 and 107.34. Of course, much can happen going forward with Trump 2.0 and we are careful about a classic “Turnaround Tuesday”.
EUR moved to a high of 1.0429 before pulling back as Trump began his inauguration speech. ECB hawks are still trying to push back against a nailed on January rate cut. Markets have fully priced in a 25bps rate cut, with around 100bps in 2025. PMI data is the main economic data release this week. There will also be focus on a couple of speeches in Davos at the World Economic Forum from ECB President Christine Lagarde. Trump also speaks on Thursday.
GBP printed a high at 1.2326 before marginally paring gains. Trump’s trade policy and tariffs should be less of a worry for the UK whose economy is strongly services oriented. EUR/GBP popped higher to a six-month top at 0.8473. The main UK data this week will be unemployment figures released today.
USD/JPY fell modestly compared to other major currencies. The BoJ meeting is the key focus this week. A 25bps rate hike is expected, with updated economic forecasts set to show higher inflation.
AUD outperformed on dollar weakness as it topped 0.6286. USD/CAD slid below 1.43 and the recent range before rebounding. Trump trade policy is front and centre with short-term volatility measures very elevated in the loonie. Limited tariffs initially should support CAD, though 1.43 needs to be decisively broken.
US stocks: Indices were closed for the Martin Luther King holiday.
Asian stocks: Futures are mixed. Indices were mostly higher after the strong lead Stateside. The Nikkei 225 rose initially and briefly got above 39,000. The BoJ are expected to hike rate at their meeting on Friday. The ASX 200 was boosted by tech and real state upside while financials outperformed. China was helped by tech outperformance after Trump’s TikTok reprieve and also the positive Trump-Xi phone call on Friday.
Gold gained as it tried to build on the upside breakout from last week. Resistance sits around $2720, highs from November and mid-December.
Day Ahead –UK Jobs and Canada CPI
UK jobs data will tell us how hot or not wage growth is in the lead up to the next BoE meeting in February. Average earnings are forecast to rise to 5.5% from 5.2%. Economists expect the private-sector ex-bonus figure likely rose 0.4% m/m in November. The unemployment figures will likely be looked through due to data reliability issues. A below/above consensus outcome for wage growth could shape BoE easing expectations a touch. Currently mkt pricing sees around 65bps of easing by year-end with the February meeting virtually fully priced in for another 25bps rate cut.
Canada headline inflation is likely to be relatively soft at 1.7%, from the prior 1.9%. The core measures are predicted to be firm, but likely well in the Bank of Canada’s target range of 1.-3%. The BoC recently dropped language about it being reasonable to expect further rate cuts if the economy evolves in line with forecasts. Rates now sit at the upper end of the BoC’s neutral estimate.
Chart of the Day – Messy S&P 500 waiting for clarity
The benchmark S&P 500 marked its best weekly performance of 4.7% last week, the biggest rise since November 8 when Trump’s election win raised hopes of tax cuts and deregulation. Q4 earnings releases continue this week, including from Netflix, healthcare giant Johnson & Johnson, consumer products maker Procter & Gamble and credit card company American Express. Overall, S&P 500 companies are expected to post an increase of 10.4% in the fourth-quarter earnings from the same period the previous year, according to LSEG IBES data as of January 15.
That bar is relatively high so company disappointments will be heavily sold. Interestingly, the tech sector is the second worst performing sector year to date. Is the premium on US tech growth waning? Of course, it has been the dominant trade of 2023 and 2024, so it might be tough to bet wholly against it. But there are increasing signs of fatigue in this trade, with valuations high. The record high sits at 6,099 and support just below 5,800.
