Markets turned their attention to Trump’s return to office, with stocks rallying on eased trade fears.
Meanwhile, oil slipped as U.S. production worries mounted, and bitcoin recovered from a sharp drop thanks to the creation of a new crypto-focused task force.
We’re breaking down yesterday’s major price reactions!
Headlines:
- Trump shared the option of imposing 25% tariffs on Mexico and Canada as early as February 1
- U.K. Unemployment Rate for November 2024: 4.4% (4.3% forecast/previous); Claimant Count Change for December 2042: 0.7k (15.0k forecast; -25.1k previous); Average Earnings excl. Bonus (3Mo/Yr) through November 2024: 5.6% (5.4% forecast; 5.2% previous)
- Germany ZEW Economic Sentiment Index for January 2025: 10.3 (14.0 forecast; 15.7 previous)
- Eurozone ZEW Economic Sentiment Index for January 2025: 18.0 (16.9 forecast, 17.0 previous)
- ECB member Francois Villeroy de Galhau noted they’re not on a “pre-set course” in setting interest rates, and said it’s ‘plausible’ the ECB will lower interest rates at each of its upcoming meetings
- CAD held firm as December core CPI challenged BOC expectations
- U.S. SEC unveiled task force to start work on crypto regulations
Broad Market Price Action:
Dollar Index, Gold, S&P 500, Oil, U.S. 10-yr Yield, Bitcoin Overlay Chart by TradingView
Markets focused on Trump’s first day back in office, with traders juggling the delayed China tariffs and fresh threats of levies on Canada and Mexico. Stocks rallied as fears of immediate blanket tariffs eased, though energy stocks struggled after Trump declared a national energy emergency and championed his “Drill Baby Drill” agenda.
Treasury yields edged lower throughout the session, with the 10-year settling near 4.57% as investors started pricing in potential Fed rate cuts. Oil slipped to $75.80 on worries about rising U.S. production, while gold hit a four-month high at $2,755 as traders sought the safe haven amid U.S. dollar weakness and trade uncertainty.
Bitcoin had a rollercoaster day, dropping to $100,250 before bouncing back to $106,000. The crypto market reacted to the SEC’s new regulatory task force announcement, even as Trump’s Day One executive orders sidestepped digital assets.
Overall, the measured policy rollout brought some relief, but markets remained cautious about what’s next for trade policy.
FX Market Behavior: U.S. Dollar vs. Majors:
Overlay of USD vs. Major Currencies Chart by TradingView
The dollar had a wild ride on Tuesday as markets juggled Trump’s return to office, central bank expectations, and a packed economic calendar. USD initially slipped during the Asian session after Trump hinted at tariffs on Mexico and Canada, though traders later brushed these off as negotiating tactics rather than immediate action.
Sterling held its ground against the dollar after U.K. employment data showed stubbornly high wage growth and steady unemployment, though GBP’s gains were tempered by growing expectations for BOE rate cuts. Traders also saw a weak German ZEW economic sentiment report, but the fallout was muted as traders zeroed in on bigger themes.
The Japanese yen put notable pressure on the dollar as markets increasingly priced in a Bank of Japan (BOJ) rate hike at this week’s meeting. Meanwhile, the Canadian dollar initially stumbled on Trump’s tariff talk but regained some footing after softer-than-expected inflation data shifted the outlook toward a more dovish Bank of Canada.
By the end of the day, the dollar clawed back some losses as markets took a more measured approach to Trump’s trade rhetoric, focusing instead on monetary policy divergence. USD closed higher against CAD but slightly lower against the rest of its counterparts.
Upcoming Potential Catalysts on the Economic Calendar:
- U.K. public sector net borrowing at 7:00 am GMT
- German Bundesbank monthly report due today
- U.K. BOE quarterly bulletin due today
- Canada IPPI and RMPI at 1:30 pm GMT
- U.S. CB leading index at 3:00 pm GMT
- ECB President Lagarde to give a speech at 3:15 pm GMT
- New Zealand visitor arrivals at 9:45 pm GMT
- Japan trade balance at 11:50 pm GMT
Traders may want to keep an eye on ECB President Lagarde’s speech in the U.S. session, as her comments could spark volatility in EUR pairs amid ongoing speculation about the ECB’s policy path.
Markets may also stay cautious with limited data on tap, as uncertainty over potential Trump policy headlines and speculation about the Fed’s next move keep risk sentiment on edge.
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