A look at the day ahead in European and global markets by Kevin Buckland
Everything investors feared about another Donald Trump presidency proved true in the early hours of day one, and currency traders in particular were left with a case of whiplash.
The absence of tariff threats in Trump’s inauguration speech was seen as a green light to sell the dollar. A few hours later, the new American president surprised by projecting levies of 25% on Canada and Mexico from February 1. The peso and the peso fell.
These measures reflect the volatility experienced during Trump’s first term as commander in chief, with markets expected to remain on constant alert. But as was often the case at the time, Trump’s salvo could turn out to be a negotiating tactic.
Trump has always said he is a dealmaker and investors may have been encouraged by his remarks on TikTok and China that sounded like an invitation to the table, and also came with a warning about tariffs if Beijing was trying to block a deal.
For the EU, too, Trump said tariffs were just a way to “fix” the trade deficit. Another solution would be increased sales of American oil and gas.
Despite these 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 U.S. dollar was higher against a basket of its biggest rivals, although not as strong as it was Tuesday morning.
China’s central bank protected the yuan by setting the highest exchange rate since early November. However, given that China has been a particular target of Trump’s tariff warnings, analysts say prolonged strength seems unlikely.
The euro and sterling lost around 0.3% each, while the yen strengthened. Japan’s currency was supported by bets on a policy tightening from the Bank of Japan on Friday, despite some concerns about the impact of any U.S. taxes on the auto industry.
Meanwhile, Trump’s coin has soared to over $10 billion in market value, helping to push other cryptocurrencies higher. This includes Bitcoin, which hit a new all-time high above $109,000, although it has slipped back below $102,000 in recent trading.
Today on the European economic calendar, Britain releases employment data and Germany releases the ZEW confidence surveys.
EU finance ministers are meeting in Brussels to discuss ways to improve competitiveness.
ECB Vice-President Luis de Guindos attends the ECOFIN meeting, also in the Belgian capital.
No Fed speakers are scheduled this week as officials are on blackout ahead of next week’s policy meeting.
Main developments that could influence the markets on Tuesday:
– Payroll in the United Kingdom (December)
– ZEW surveys in Germany (January)
– IPC Canada (December)
