The United States Dollar is rebounding this morning after facing mild losses during yesterday’s session, trading a touch stronger against most of its G10 peers
Overview
The broader Bloomberg Dollar Spot Index, however, is still down more than a percent since Friday afternoon and is unlikely to recover substantial ground before the end of this week. Traders are continuing to watch the new Trump administration’s policy announcements, particularly for news on trade and economic policy, and yesterday the President turned his focus to Russia and Ukraine, threatening further sanctions against Russia unless Putin begins negotiating an end to the war. FX markets barely reacted to the news, though, suggesting that focus is still squarely on tariffs and their economic impact. There is a good chance that traders are under-pricing the risk of tariffs against Mexico, Canada and potentially China and Europe on February 1st, leaving the Buck vulnerable to a positive shock in the next couple weeks.
Amidst a very light data calendar for this week the US did release initial and continuing jobless claims this morning, both largely in line with expectations. Continuing claims were a bit higher than market expectations, but not enough out of line to spook markets on employment. Global central banks have now come back into focus, and Norges Bank was the first on the docket early this morning holding interest rates unchanged at 4.5%. The Bank of Japan will release its rate decision overnight tonight, widely expected to raise interest rates 25 basis points. Central banks really pick up steam next week, and Federal Reserve officials are now in their blackout period ahead of the Fed’s January 29th rate decision. Though Powell & company are all but guaranteed to hold interest rates steady next week, markets will be watching like proverbial hawks for any hint that the central bank is concerned with the potentially inflationary impact of tariffs and new fiscal policies from the new administration.
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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 ⇓
Though still trading stronger than immediately preceding Donald Trump’s inauguration Monday afternoon, the Loonie is losing a bit of ground this morning against the Buck to the tune of a tenth of a percent from yesterday’s close. Canada released retail sales for the month of November this morning, showing no growth. Retail sales excluding autos actually contracted by 0.7% from October, and the prior month was revised downward to show a contraction as well. The Bank of Canada, also meeting next Wednesday, is widely expected to cut interest rates by 25 basis points to support the sluggish economy.
JPY ⇑
Though FX markets are overall quite quiet this morning, Japanese Yen is managing to eke out a small comeback against the Dollar after losing substantial ground during yesterday’s session. The Yen has been moving inversely with most of its G10 peers as of late, showcasing its traditional sensitivity to shifting risk premiums. The Bank of Japan is also likely to hike interest rates by 25 basis points overnight tonight, its third increase in less than a year. Markets will undoubtedly be bracing for volatility off such a decision, after August’s interest rate hike sparked global panic in financial markets.
