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The US Dollar is broadly bid across G10 FX following President Trump’s announcement to impose tariffs on goods from Canada, Mexico, and China. In contrast, stock markets and cryptocurrencies experienced sharp declines overnight, although most markets are stabilizing in early London trade. This development underscores the sensitivity of both domestic and international markets to policy decisions and trade policies by the US government, impacting the broader global economic landscape.Today, US tariffs of 25% on imports from Canada (and 10% specifically for oil) and Mexico are set to be implemented. Calls are planned this morning between Trump and representatives from Canada and Mexico, but Trump has indicated that he doesn’t expect any ‘dramatic’ outcomes, making a retreat from the tariffs appear improbable. China is facing 10% tariffs as well, and Trump has mentioned that the European Union could be targeted next with tariffs that ‘will definitely happen.’ Various analyses predict that the impact on US GDP could reduce growth by over a percentage point, alongside a projected rise in inflation. Although Canada and Mexico are imposing their own tariffs in retaliation, the effects of US tariffs on their economies will be significantly larger than their retaliatory measures against the US. Consequently, the mood in the markets is generally risk-averse, and currency fluctuations are notable as expectations of varied monetary policy responses emerge. The inflationary effects in the US limit the Federal Reserve’s ability to lower interest rates further; however, the Bank of Canada may need to evaluate its approach given reduced trade and economic output. Currently, the UK appears to be a lower priority for US tariffs, but it will still feel the impact from the EU if US tariffs negatively affect demand in this crucial export market.US job market updates, including adjustments to benchmarks, and the Bank of England’s decision are set to be key highlights next week. The focus will primarily be on US employment data and the BoE’s decision regarding interest rates in February. Following job openings on Tuesday, the ADP report on Wednesday, and initial jobless claims on Thursday, the employment report will conclude the week on Friday and will also feature annual benchmark revisions. The preliminary estimate from last August, which will be revised or confirmed this week, suggested a significant downward revision of 818k for the March 2024 employment figures. This figure is notably large compared to historical data and suggests a slowdown in the strength of the labor market due to cyclical revision patterns driven by methodological constraints. However, with various other indicators remaining stable, it remains uncertain whether a significant negative benchmark revision will greatly impact the Federal Reserve. On Thursday, the BoE meeting is expected to result in a 25 basis point decrease in the Bank Rate to 4.5%, with a vote of 8-1. Although actual GDP has fallen short of earlier expectations, the upcoming annual supply side review is not anticipated to adversely affect potential growth. This suggests that some excess capacity may emerge sooner than 2026, as indicated by new MPR forecasts, allowing for a generally more dovish tone in MPC communications. Nonetheless, there will be limitations on how much messaging can shift, as wage growth and short-term inflation outlooks will temper the policy response to declining employment metrics. This likely means that the ‘gradual’ guidance will be maintained.
Overnight Newswire Updates of Note
(Sourced from reliable financial news outlets)
FX Options Expiries For 10am New York Cut (1BLN+ represents larger expiries, more magnetic when trading within daily ATR)
CFTC Data As Of 31/1/25
Technical & Trade ViewsSP500 Pivot 6040
EURUSD Pivot 1.0435
GBPUSD Pivot 1.2614
USDJPY Pivot 153.77
XAUUSD Pivot 2692
BTCUSD Pivot 101,960
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