The Dollar weakened considerably last week as markets began to question the resolve behind trade tariff posturing. The DXY suffered its worst week since last November, falling the better part of 2% to the mid-107 range. Despite president Trump’s repeated calls to address the trade imbalance, market participants have been waiting for something a little more concrete. Judging by the recent events in Colombia, the wait may be over. The USD made a stand early this morning and the Dollar Currency Index is up 0.2% at the time of writing. Despite everything, interest rate traders have cemented their prediction of zero change during the next Fed meeting on Wednesday. Gold was all too happy to capitalise on the weakness exhibited by the Greenback, climbing to within a few Dollars of its previous all-time high. The precious metal rose to $2,770 an ounce by Friday’s close, just shy of the record $2,790 from last October. Weakness in the Dollar aside, the uncertainty surrounding tariffs and sanctions is also a contributing factor to the rise in gold. Safe-haven inflows are back on the menu. The Lunar New Year is just around the corner so trading conditions may be somewhat off this week. Chinese markets will be closed from tomorrow until next Monday. Not much on the economic calendar today or tomorrow but on Wednesday both the Bank of Canada and Federal Reserve will convene to establish interest rates on their respective currencies. The former is expected to lower rates on the Canadian Dollar down to 3% from 3.25% whereas the Fed is expected to keep rates steady at 4.5%. The ECB follows on Thursday and is expected to lower the deposit facility rate on the Euro down to 2.75% from 3%. The big event on Friday is the publication of the PCE price index, the Fed’s preferred inflation metric. If the first week of Donald Trump’s presidency is anything to go by then the second should make for equally exciting times. Worth keeping an eye on ongoing developments, particularly those relating to tariffs.
President Trump remains centre stage. It has been an exciting week, politically speaking, from executive orders to various announcements, financial markets have had a lot to keep up with. The Stargate project was one such announcement, an ambitious plan to invest $500 billion over the next four years into cutting edge AI infrastructure. The announcement was welcomed with open arms by US stocks, culminating in the S&P 500 reaching a record high yesterday. The Dow and Nasdaq are not far behind either, the latter now only a hair’s breadth from its previous all-time high. Yesterday, during a remote address to the World Economic Forum in Davos, President Trump called for Saudi Arabia and the wider OPEC cartel to lower oil prices, claiming artificially high crude valuations were fuelling war efforts in Ukraine. Crude prices have taken a sizeable step down since the yearly highs last week. Brent is now hovering around $77 a barrel and WTI is down to $74. Oil markets are likely to remain pertinent during the next few years, as sanctions and tariffs levelled against oil-producing nations will continue to affect supply and demand dynamics. Not to mention the possibility of the US ramping up its own production domestically. During the same speech, Trump also demanded that interest rates be slashed immediately. Just how much sway the president has with the Federal Reserve is a never-ending topic of debate, but the odds of a rate cut next week have not budged, remaining at essentially zero for any kind of reduction. On the topic of interest rates, the Bank of Japan elected to hike rates on the Yen by 25 bps to 0.5% this morning, the highest rate the Yen has seen since 2008. Not much of a reaction in USDJPY so far; the call appears to have been universally expected. The bullish momentum seen in gold markets this week continued this morning. The precious metal rose to $2,777 early on in the Asian session, bringing it to within touching distance of the record high established in October last year.
Today is the day. In a few hours, Donald Trump will be sworn in as the 47th president of the United States. Although US markets are closed, traders would do well to stay alert for any unexpected developments or announcements from the incoming administration. Market participants should be habituated to this by now, but expect the unexpected. Any mention of tariffs or trade wars or even any cryptocurrency related announcements could violently swing the needle. The economic calendar is more or less empty for the day so all eyes are on the incoming president. For those who missed the drama over the weekend, Donald Trump released his very own meme coin on Saturday, aptly named “TRUMP”. The token, released on the Solana blockchain, initially sold for around $10 before reaching over $70 on Sunday, briefly pushing it into the top 15 largest market caps in the cryptocurrency sphere. Ethics of the token release can be debated ad nauseum, but the message is clear: the new administration is vocally pro-crypto. The Dollar appears stable this morning, the DXY remaining comfortably above 109 despite a minor drop in early trading hours. As already mentioned, the NYSE is closed today so nothing going on there. On Friday, the Bank of Japan will have to come to a decision on the next interest rate target for the Yen. Traders are currently predicting a 25 bps rise to 0.5%. A lot of money rests on the difference in interest rates between the Dollar and the Yen, in fact the last time the BoJ intervened markets went absolutely haywire.
Uncertainty is back on the menu. The inauguration is now only three days away and many traders appear to have rebalanced their risk appetite. Gold finally saw some decent inflows this week, which pushed the precious metal to $2,725 an ounce during yesterday’s session, the highest valuation seen for over a month. The incoming president is nothing if not unpredictable and his first days in office could make for volatile trading conditions. Cryptocurrency markets also made a move over the past few days, which saw bitcoin prices breach $100k once again and push as high as $102k in the early hours of this morning. Crypto markets obviously do not qualify as safe-haven assets, rather the optimism stems from the expectation that the new regime will be far more accommodating to the technology itself, especially in terms of regulatory clarity. For traders and developers alike, the previous four years have been somewhat difficult to navigate and many will be hoping to see an end of the quagmire. In a recent interview, Blackrock’s ETF chief, Samara Cohen, predicted that cryptocurrency deregulation would propel bitcoin to another historic year. Time will tell. Oil prices took another step higher on Wednesday, as US crude inventories fell to their lowest level since 2022. Import-export dynamics continue to be the main driver behind the price action, but once again the incoming Trump presidency could throw an additional spanner in the works in the form of tariffs or sanctions. Futures for Brent crude and WTI rose to $82 and $80 a barrel respectively.
Greenback pulls back ahead of inflation data. Markets eagerly await the latest bout of CPI data from the US Bureau of Labour Statistics later today. The Federal Reserve will also be keeping an eye on the release, as higher than expected numbers will spoil any appetite to reduce interest rates. Before the US data however, currency traders would do well to pay attention to the UK inflation rate. The Pound Sterling has been under immense pressure recently, wicking as low as $1.21 on Monday. Confidence in the UK economy remains low and the inflation report later today could do even more damage if the numbers do not meet predictions. Staying on the topic of inflation, the Eurozone will publish its own figures on Friday. Weakness in the Dollar allowed the Euro to reclaim $1.03 yesterday but the common currency remains in a difficult position. CPI reports are all well and good but pale in significance to what is right around the corner: the inauguration of Donald Trump. Only five days to go before the big day and talk of trade tariffs are rife, to say nothing of some of the wilder ideas being thrown around, such as the possibility of purchasing Greenland. The prospect of fewer interest rate cuts from the Fed certainly left in a dent in asset prices over the past month or two, not least in the crypto markets. Bitcoin underwent a violent reversal on Monday however, falling all the way down to $89k before shooting back up to $97k at the time of writing.
Huge non-farm payrolls numbers wreaked havoc last Friday. The headline number came in at 256k new jobs, almost 100k more than expected. The unemployment figure also unexpectedly dropped to 4.1% from 4.2% previously. Strong US employment figures are nothing new at this point, the American labour market has consistently demonstrated its resilience in recent months. Nevertheless, traders were once again taken aback on Friday following the NFP publication, particularly in the foreign exchange markets. The Dollar pushed higher yet again, briefly taking the DXY to within a hair’s breadth of 110 and dragging Cable and the Euro to new lows. The price action continued this morning in the Asian session, with the Pound reaching into low $1.21 territory and the Euro barely above $1.02 at the time of writing. Odds of an interest rate cut on the Greenback during the next Fed meeting essentially fell to zero following the strong jobs report. In the eyes of many, there is simply no justification to bring rates down given the current situation. US stocks took the news badly, with all major indices falling sharply. Gold gained 0.7% last Friday to close at $2,689 an ounce but the more interesting move in commodities came from the oil markets. Crude prices skyrocketed following news of more sanctions against Russian oil tankers and maritime insurance providers. Dwindling US stockpiles also contributed to the move, which saw Brent Crude push past $80 a barrel and WTI to $77 this morning. The sanctions would target more than 180 tankers carrying Russian oil.
