Kevin Buckland’s view of the day ahead in European and global markets
Everything investors feared about Donald Trump’s new presidency proved true in the early hours of the first day, and currency traders in particular were left with a case of the aftershock.
The lack of threats of tariffs in Trump’s inauguration speech was taken as a green light to sell the dollar. A few hours later, the new US president surprised with plans for 25% tariffs on Canada and Mexico from February 1st. And the peso fell.
The moves reflect the volatility experienced in Trump’s first term as commander-in-chief, with markets having to remain on constant alert. But as was often the case then, Trump’s salvo could turn out to be a negotiating tactic.
Trump has always said he is in the business of making deals and investors may have been encouraged by his statements on TikTok and China that appeared to be a table invitation and also came with a warning of tariffs if Beijing tried to block the deal.
And for the EU, Trump said tariffs are just one way to “correct” the trade deficit. Another would be more sales of US oil and gas.
Despite those comments, Trump backed away from a universal tariff, saying “we’re not ready for that yet.”
Currencies have been yo-yoing over the past few hours. However, as of midday in Asia, the US dollar was up against a basket of its biggest rivals, although not as strong as it was early on Tuesday.
China’s central bank protected the yuan by setting the strongest peg since early November. Given that China has been a particular focus of Trump’s tariff warnings, analysts say an extended force seems unlikely.
The euro and sterling were down around 0.3% each, while the yen strengthened. The Japanese currency was boosted by bets on a policy tightening by the Bank of Japan on Friday, despite some concerns about the impact of any US tariffs on the auto industry.
Meanwhile, the Trump meme coin has soared to more than $10 billion in market value, helping lift other cryptocurrencies along with it. That included bitcoin, which hit a new all-time high above $109,000, although it was back below $102,000 in recent trades.
On today’s European economic calendar, Britain releases jobs data and Germany has ZEW sentiment surveys.
EU finance ministers are meeting in Brussels to discuss how to improve competitiveness.
ECB Vice President Luis de Guindos joins the ECOFIN meeting, also in the Belgian capital.
There are no Fed speakers scheduled for this week, and officials are on a break ahead of next week’s policy meeting.
Key events that could affect the markets on Tuesday:
– Wages in the UK (December)
– German ZEW research (January)
– Canada CPI (begging)
