The United States Dollar, after a selloff into the morning of yesterday’s session, is gaining back ground in a major way this morning after President Trump effectively put any and all tariff schemes back on the table last night.
Overview
After news broke that Trump’s new Treasury Secretary Scott Bessent, as suggested by a Financial Times article, supports gradual universal tariffs starting at 2.5%, Trump later spoke to reporters on Air Force One and said he wants tariffs “much bigger” than that threshold. This has effectively nullified last week’s softer tone on the matter, and the Dollar is gaining ground against all G10 currencies this morning. Traders have spent the last week paring off their bets on a strong Dollar, so an outsized move on these words does make sense – the Bloomberg Dollar Spot Index is more than half a percent stronger today than at yesterday’s close.
Of course, Trump’s tariff talk isn’t the only thing the markets will have to digest this week – the Federal Reserve begins its two-day meeting this morning and will release its latest interest rate decision tomorrow at 2PM. Though the Fed’s nearly-inevitable call to hold interest rates steady isn’t terribly exciting to markets, traders are focused on what Jerome Powell may discuss in his press conference 30 minutes after the decision, along with any tweaks to the accompanying statement of the policy decision itself. Powell will inevitably have to field questions on the potentially inflationary impact of any tariffs from the Trump administration that may come down the pipeline. Especially following last night’s comments showing that universal tariffs are far from off the table, markets are ripe for extra sensitivity to anything Powell may say to that respect. Powell has, historically, kept markets fairly calm on decision days by remaining quite measured during his press conferences, often contradicting what markets may read as a very hawkish or dovish decision, but there’s always the chance that tomorrow is the exception following both tariff talk and Trump’s statements to Davos last week saying he’ll push the Fed to cut interest rates ‘immediately.’
The fireworks this week aren’t isolated to the US, either – the Bank of Canada will also likely cut interest rates by 25 basis points tomorrow morning, and the European Central Bank’s decision is due out Thursday morning. The Eurozone will also release its latest GDP reading Thursday, and the US sees the PCE Price Index – the Fed’s preferred gauge of inflation – Friday morning.
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What to Watch This Week…
- Bank of Canada Rate Decision, Wednesday
- FOMC Rate Decision, Wednesday 2PM
- ECB Rate Decision, Thursday
- Eurozone GDP, Thursday
- US PCE Price Index, Friday 8:30AM
- Monex USA Online is always open
CAD ⇑
The Loonie is a notable outperformer in the G10 this morning, along with Mexican Peso, both currencies holding steady against USD. Though President Trump’s reiterated tariff threats are spooking other major and minor currencies this morning, Canada and Mexico have already been on the receiving end of more serious threats, making a 2.5% universal levy far less impactful on their currencies compared with others. The Bank of Canada is also set to cut interest rates by 25 basis points tomorrow morning in an effort to boost the nation’s rather stagnant economy, but markets will be keeping an eye on any accompanying statements from the BoC.
AUD ⇓
The Australian Dollar is the biggest loser in the G10 this morning, down roughly three quarters of a percent against USD since yesterday’s close and tracking weaker than all of its peers. President Trump specifically threatened to place tariffs on metals including steel, copper, and aluminum, keeping the commodity-sensitive currency at the bottom of the barrel of majors. Important to note, however, is that while Australia is a big exporter of these metals, it sells almost none to the US – AUD is much more sensitive of late to headlines concerning Sino-US relations as China is its biggest trading partner by far.
