The United States Dollar completely reversed course in yesterday’s trading session and is opening this morning weaker against all G10 currencies
Overview
The Dollar Spot Index dropped down to its lowest in two weeks, placing several currencies at their year-to-date highs against the Buck. Tariff talk – or in yesterday’s case, the lack thereof – is continuing to drive FX pricing, but market attention is now shifting to consider the next round of central bank meetings, beginning with the Bank of Japan early Friday.
Following new President Trump’s initial threat Monday evening of 25% tariffs on both Canada and Mexico as early as February 1, markets have continued to weigh just how possible such proposals are and whether or not they may actually come to fruition. As it stands now, it appears traders are leaning towards ‘no,’ or at least ‘not so fast,’ prompting a remarkable rebound for both CAD and MXN over the last 24 hours. Trump’s initial bluster toward China has also cooled down over the last two days, moving back from threats of “maybe 100%” tariffs to a discussion of blanket 10% punitive duties on Chinese imports. Trump also ratcheted up discussions of ‘very bad’ tariffs on the European Union, but traders are shifting toward a wait-and-see approach. These threats, however, are still keeping the international community on its toes, as Trump has previously shown a willingness to enact policy with little to no warning, especially regarding trade policy. Equities, for their part, are cheering the new administration and the S&P 500 closed at its highest level this calendar year yesterday.
The data calendar for the rest of the week does remain relatively light albeit for a few releases Friday morning. The US, UK and Eurozone will all release PMIs for the month of December, expected by traders to show a still lackluster performance across the board. The Bank of Japan also releases its interest rate decision Friday morning, and markets are bracing for some volatility to come with that.
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What to Watch This Week…
- Bank of Japan Rate Decision, Friday
- Eurozone PMI, Friday
- UK PMI, Friday
- US PMI, Friday 9:45AM
- Monex USA Online is always open
CAD ⇑
The Loonie, while losing a bit of ground this morning, has rebounded sharply against USD following Monday night’s big selloff in the face of tariff threats from new President Trump. Though his rhetoric is still pointing to a 25% tariff on Canadian goods as soon as February 1st, traders are treating this proposal (or threat) as more of a negotiating tool than anything that is set in stone and CAD has been able to claw back more than a percent of ground off of Monday’s weak point. The Bank of Canada, though, is still quite likely to cut interest rates by 25 basis points next Wednesday, while the Federal Reserve should hold rates steady later that afternoon.
JPY ⇓
Japanese Yen is one of very few losers against the Buck this morning after a very positive start to the year overall, down roughly a third of a percent this morning as traders become willing to put a little more risk back on the table following Trump’s inauguration on Monday. The Bank of Japan is expected to raise interest rates by 25 basis points, which would constitute its largest move since 2007 and would be its third rate hike in less than twelve months. Nonetheless, even a hike would keep Japan’s borrowing costs as the lowest among developed nations, but as many central banks continue to lower interest rates the Yen could gain across the G10 off such a move
