Very quiet end to the week with little movement, as markets waited on tenterhooks to see if Trump would be unleashing tariffs on Canada and Mexico.
On the data front, both French and German CPI numbers came in lower than expected for January, making the case for further rate cuts this year. US core PCE (the Fed-preferred measure of inflation) came in line with expectations and thus had little impact on USD.
*Daily move - against G10 rates at 7:30am, 03.02.25
** Indicative rates - interbank rates at 7:30am, 03.02.25
Donald Trump announced over the weekend that the White House will impose 25% additional tariffs on imports from Canada and Mexico, as well as 10% tariffs on China's exports to the US. USD rallied upon markets opening but some of the gains have eased after Canada and Mexico both stated they will retaliate and China will lodge a complaint with the World Trade Organization (WTO). There are calls scheduled today between Trump and the respective leaders of Canada and Mexico to see if they can reverse the tariffs and we shall await the outcome of this. Unsurprisingly, both CAD and MXN are both weaker this morning.
Trump this morning is pointing the finger at Europe stating “you’re next!”. The EU has already commented stating they will respond firmly.
We on the front foot ahead of key job numbers across this week, culminating in non-farm payrolls on Friday. An improvement in the job market will likely lead to easing of rate-cut bets and once again add to further dollar strength. The other key event is closer to home with the Bank of England (BoE) expected to cut rates by 0.25% on Thursday, which is largely already priced in. But what could be market moving, is whether the Bank signals concerns about the economy. A downgrade on the growth outlook will prompt traders to price in more rate cuts than currently projected and we will likely see a weaker pound as a result.
Back to today and we have January’s CPI numbers from Europe. Both Germany's and France’s numbers came in lower on Friday, so we would expect the bloc’s numbers to follow suit, adding to the woes for EUR. ISM manufacturing in the US has been rising of late and should today's numbers show further signs of encouragement, then we would expect further demand for USD.
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