After taking its biggest tumble in a week on Monday, the dollar is trading slightly positively this morning against most of its major peers as some risk-forward sentiment returns to markets this week.
Overview
Volatility is a bit lower today, with most majors moving less than half a percent. Overnight news from the White House is once again driving markets today, after the Trump administration said it is “on track” to ease the impact of tariffs on the automotive industry, set to be announced at a rally in Detroit today. The proposal would reduce tariffs on imported auto parts for vehicles manufactured in the US, a definitive détente.
Treasury Secretary Scott Bessent also said that many of the US’ major trading partners have made ‘very good’ proposals to avoid the sting of proposed US levies, and said he expects a deal with India to be signed in the coming days as the administration speaks to “at least 17” trading partners over the next few weeks. Bessent also told reporters at a White House press briefing that he expects tariff revenue could provide some income tax relief in the upcoming tax bill proposal, though there was little evidence presented to back such a claim. On the flip side, however, trade tensions with China remain quite high after a top Chinese diplomat warned other nations against “caving” to US tariff threats. This warning comes as many Chinese exporters have begun converting or said they will convert their current US Dollar holdings into Chinese Yuan, part of a “de-dollarization” strategy that has played out in many major markets over the last several months.
The biggest economic news of the week from the US is due out tomorrow morning, with the first reading of US GDP for Q1 of this year. While economic growth in Q4 came in at 2.5%, economists expect that Q1 GDP will show growth of just 0.3% for the first 100 days of the Trump administration. The first release of the Q1 PCE price index is also expected to show price growth of 3.2%, up from 2.6% at the end of last year. Such readings would add further fuel to the fire of fear around the health of the US economy and could continue to spell doom for the Buck.
What to Watch This Week…
- US Q1 GDP Adv, Wednesday 8:30
- US PCE Price Index Q1 Adv, Wednesday 8:30
- Monex USA Online is always open
The complete Economic Calendar can be found here.
CAD ⇑
The Loonie is outperforming its G10 peers this morning and managing to trade flat against USD after mark Carney’s Liberal party won Canadian elections last night. The Liberal margin of victory, however, was fairly narrow, winning 168 seats to the Conservative party’s 144, and would place the Liberal party short of an outright majority of 172 seats in the House of Commons. Nonetheless, Carney’s victory speech placed heavy emphasis on the current major changes in the global trade order, and paved the way for a further decoupling of the US and Canadian economies.
EUR ⇓
The single currency, after gaining half a percent against USD during yesterday’s session, is retracing a bit and losing a touch of ground this morning as risk sentiment returns to markets following continuing chatter on automotive tariffs. Germany announced yesterday that in order to increase its defense spending from 2% to 2.5% of GDP it would be triggering an EU-wide “escape clause,” but only Germany and Portugal have agreed to the usage of such a clause.
