Though headlines on tariffs continue to dominate the global conversation, the United States Dollar is trading close to flat on the morning today, seeing some mild losses against a few G10 currencies.
Overview
Last night President Donald Trump signed an executive order imposing 25% tariffs on all imports of steel and aluminum, set to go into effect March 12th. It seems, however, that markets are approaching the longer-dated start on this as a signal that, once again, this action will be used more as a negotiation tactic rather than a hard imposition, much like last week’s blanket 25% tariffs on Canada and Mexico. Trump also commented that further detail on reciprocal tariffs would come in the following days. Traders have been attempting for the last several sessions to parse through the noise surrounding these actions, and look to have settled against trading on headlines alone, keeping the Dollar’s price action muted this morning.
Focus this morning is split between continued tariff talk and Federal Reserve Chair Jerome Powell’s testimony in Congress this week, due to begin shortly. Powell is largely expected to reiterate, as he said in his press conference following the Fed’s last decision, that interest rates are likely to remain on hold. Cleveland Fed President Beth Hammack said in prepared remarks this morning that it’s appropriate to hold rates steady “for some time,” as further progress toward a 2% inflation rate is needed. Treasuries are slipping in anticipation of this testimony, which will undoubtedly be clouded with uncertainty on the economic outlook from President Trump’s policies. Some economists project that if all of Trump’s tariff policies are to eventually go into effect, US inflation could rise back up to above 3.5% in the coming year, and Powell is likely to face some heavy questioning on how the Fed would handle this rise.
On the topic of inflation, US CPI for January is due out tomorrow morning, expected to show mixed results. Markets expect that the full inflation reading will decrease slightly on a monthly basis, but that ‘core’ inflation excluding food and energy may rise slightly. The UK and Eurozone will also release Q4 GDP figures at the end of this week.
What to Watch This Week…
- US CPI, Wednesday 8:30AM
- UK GDP, Thursday
- US PPI, Thursday 8:30AM
- Eurozone GDP, Friday
- Monex USA Online is always open
GBP ⇑
Pound Sterling has gained about a quarter of a percent of ground against USD this morning, though still trading in familiar recent ranges following GBP’s comeback in the second half of last week. BoE policymaker Catherine Mann spoke this morning to explain her decision to vote for a 50 basis point cut last week, and highlighted the ongoing weakness of the UK economy and her expectation that price growth will not be nearly as high this year as last, but markets are focusing most on her remarks that “policy activation does not mean ‘cut, cut, cut’ and Sterling is managing to stay afloat in thin flows this morning.
JPY ⇓
Japanese Yen is one of few losers against USD this morning as haven currencies in general are underperforming today. Markets clearly are no longer taking announcement of further tariffs as clear indiciation of their implementation, and risk premiums are responding in kind and staying fairly low in trading today. JPY did rally more than 2% against USD last week, though, so today’s extension of yesterday’s slight move lower still has the currency near recent highs.
