Trading on USD was volatile yesterday. This came a week after the Washington Post reported that Trump's tariffs would be limited to specific critical imports, which led markets to consider this a more diluted version of his initial plans. As a result, USD broadly weakened, causing GBPUSD and EURUSD to climb back and erase the losses suffered since the turn of the year.
GBP also benefitted on the improved risk sentiment in the market. But later in the afternoon, after Trump refuted the claims made by the Washington Post, stating his tariff policy will not be pared back, those USD losses were trimmed.
German CPI numbers came in higher than expected which gave the EUR some interim support ahead of today's EU CPI numbers.
And over in Canada, PM Justin Trudeau announced he will be resigning from his post after nine years of power.
*Daily move - against G10 rates at 7:30am, 07.01.25
** Indicative rates - interbank rates at 7:30am, 07.01.25
EU CPI numbers will be the focus this morning - a higher-than-expected number should further support the EUR and allow the currency to continue to correct versus USD after its recent drop to a 2-year low. However, any correction on EURUSD will likely be short term as markets continue to fear the prospect of tariffs on the eurozone.
US Data will be the focus of the afternoon with the JOLTS numbers and ISM services and so long as the data continues to support the US growth exceptionalism narrative then we continue to favour USD to benefit over the medium term. As a result, we foresee any USD weakness will be short lived, and clients should use this opportunity to look at covering any future USD needs they might have.
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