Looking ahead to the day in European and global markets with insights from Kevin Buckland.
Investor concerns about the potential implications of another Donald Trump presidency materialized quickly on day one, causing currency traders to react swiftly.
The absence of tariff threats in Trump's inauguration speech prompted a sell-off in the dollar. Shortly after, the U.S. president announced plans for tariffs on Canada and Mexico starting February 1, sending the Canadian dollar and Mexican peso into a tailspin.
This behavior reflects the volatility reminiscent of Trump's first term as President, necessitating continuous vigilance from the markets. Yet, as history has shown, Trump's tactics may be part of a negotiation strategy.
With his reputation as a dealmaker, investors found reassurance in Trump's comments on TikTok and China, hinting at a willingness to negotiate but warning of tariffs if needed.
Additionally, Trump suggested avenues beyond tariffs to address trade deficits, such as increasing sales of U.S. oil and gas. Despite this, he refrained from immediate action, stating "we're not ready for that yet."
Currency markets endured fluctuations in recent hours. By midday in Asia, the U.S. dollar had gained against major counterparts, albeit not as significantly as earlier on Tuesday.
China bolstered the yuan by setting a robust fixing, potentially in response to Trump's tariff threats. However, analysts don't anticipate sustained strength given the ongoing tensions.
While the euro and sterling weakened slightly, the yen saw gains, partly due to expectations of policy adjustments by the Bank of Japan. Concerns lingered regarding the impact of potential U.S. tariffs on the auto industry.
Meanwhile, the value of cryptocurrencies, particularly Bitcoin, surged, surpassing $10 billion, influencing the broader digital currency market.
On the economic calendar today in Europe, Britain is releasing job data and Germany's ZEW sentiment surveys are due.
EU finance ministers are convening in Brussels to discuss enhancing competitiveness, with ECB Vice-President Luis de Guindos participating in the ECOFIN meeting.
No Federal Reserve speakers are scheduled this week, given the blackout period ahead of the upcoming policy meeting.
Key market influencers on Tuesday include:
- UK payrolls (Dec) - Germany ZEW surveys (Jan) - Canada CPI (Dec)