The United States Dollar is returning to positive trading this morning after a muted session with little concrete data yesterday, though the Bloomberg Dollar Spot Index is still set to close with its first weekly drop since November this afternoon.
Overview
With little remaining on the domestic data calendar for this week, the attention of traders is firmly focused on the inauguration of incoming President Donald Trump on Monday morning. US retail sales grew less than expected in the month of December, released yesterday, adding to the rather lackluster data prints received this week for the world’s largest economy. Equities, for their part, have rebounded after a selloff in the front half of the week and are set to close out higher ahead of next Monday’s banking holiday. China also surprised traders this morning, releasing annual GDP figures that met the government’s target of 5%, helping to improve the global mood.
The advent of a new presidential administration always brings with it many questions, and this incoming administration is no exception. Trump’s nominee for Treasury Secretary, Scott Bessent, did help markets assuage some of their fears in his confirmation hearing yesterday, giving traders a very measured and status-quo outlook on the way he would run the Department of Treasury. Market anxiety does remain in a big way, however, mostly due to the tariff proposals of the incoming President. Though chatter from Trump’s incoming cabinet has opened the door to a more gradual implementation of these admittedly harsh tariffs, which may give the global economy some breathing room, even a scaled-back approach or a slowed-down implementation still would have a substantial impact on many other nations. The US is the largest trading partner of many nations, and as much of the world is still trying to keep inflation low and promote economic growth, these proposed trade policies are of great concern.
Monex USA will be closed in observation of the Martin Luther King, Junior Day federal holiday on Monday. Trump’s ‘day one’ actions, however harsh or scaled back they may be, are without a doubt going to drive volatility higher on Tuesday and through next week, and we expect price action to be quite choppy, especially leading into the next central bank meeting cycle beginning later this month.
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What to Watch This Week…
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GBP ⇓
Pound Sterling, after managing to hold onto some of Wednesday’s gains off of soft US CPI during the morning of yesterday’s session, has firmly reversed course and is trading roughly half a percent weaker against USD compared to yesterday’s close. UK retail sales for December, released this morning, dramatically undershot expectations and actually contracted 0.6% compared with the market consensus of 0.3% growth. As UK inflation came in only slightly below expectations earlier this week, this is a rather concerning sign, and the Bank of England’s policymakers are all but guaranteed to cut interest rates to promote growth at the central bank’s next meeting on February 6th.
EUR ⇓
The single currency, though still trading a touch stronger against the Dollar than at the beginning of this week, is slipping in early trading this morning following the release of Eurozone CPI. Prices in the Eurozone grew 0.4% last month and 2.4% over the last year. This does place the economic bloc in decent shape when it comes to inflation, something the European Central Bank has been looking for, but the macroeconomic picture is still relatively grim. Germany’s economy remains in contractionary territory, and potential tariffs from the US against European exports are prompting worries that inflation may return as prices go up to accommodate these levies.
