The USD eased, oil prices slipped, equity markets strengthened, and US yields firmed ahead of the US inauguration. The USD drifted lower as investors remained cautious ahead of an expected flurry of policy announcements on the first day of President Trump's second presidency. Equity markets strengthened after risk sentiment improved after Trump & Xi discussed trade, TikTok and Fentanyl, which may help set the tone for geopolitical relationships at the start of the new administration. TikTok started restoring service in the US on Sunday after Trump said he would halt enforcement of a law requiring the app's Chinese owner to find a buyer for three months. Elsewhere, Bitcoin jumped 5.5% after the president-elect and his wife, Melania, unveiled their own meme-coins over the weekend. In focus this week. Monday is the US Holiday for MLK Day. The annual World Economic Forum in Davos begins; Donald Trump will be sworn in as the 47th President. Tuesday UK jobless claims & Canada CPI. Wednesday, ECB President Lagarde speaks at Davos. Thursday, Turkey & Norway rate decision & Canada Retail Sales, & US President Trump joins Davos forum online. Friday, Japan's CPI & Rate decision and Eurozone & UK PMI's.
In other news. Trump plans blitz of executive orders for first days in White House. European carmakers braced for tough 2025 despite 'firework' of launches. Musk complains about China's ban on X as Trump prepares for a TikTok reprieve. Hamas frees hostages, and Israel releases Palestinian prisoners on day one of the ceasefire. Russian disinformation targets German election campaign, says think tank. Yemen's Houthis will target only Israel-linked vessels after the Gaza ceasefire, says Houthi body. China is both hopeful and on edge as Trump returns to the White House. Former Deputy PM Freeland pitches herself as tested Trump negotiator as protesters disrupt Liberal leadership launch.
In currency markets, investors see an 80% chance that the BoJ will hike interest rates at its meeting at the end of the week. GBP dropped to a five-month low against the euro, while the Indian rupee edged higher as the USD dipped ahead of President Trump's inauguration. CNY firmed by 0.15%, while Asian currencies gained by 0.3% on average against the USD. Trading currencies are mixed, with JPY & MXN easing 0.2%, ZAR & NOK down 0.1%, CHF flat, SEK up 0.1%, AUD strengthening 0.3%, and NZD rallying 0.6% against the USD.
In commodity markets. Oil & copper prices weakened by 0.4%. Natural Gas prices tumbled by 4%. Gold & Silver prices ease by 0.1%, while Wheat & Soybean prices are flat.
CAD holds steady in early trading but is down nearly 1% in January, as investors remain cautious ahead of President-elect Trump's inauguration and the prospect of up to 25% tariffs on Canadian goods into the US. The loonie is expected to remain on the back foot amid tariff concerns and domestic political uncertainty. This week sees a flurry of key domestic economic data releases: Monday's BoC Business Outlook Survey, Tuesday's CAD inflation report, and Thursday's CAD Retail Sales will help provide direction for the loonie this week.
EURCAD rallies on the prospects of CAD tariffs impacting the loonie and expectations of aggressive interest easing by the BoC in H1/25.
EUR holds steady above 1.0300 with a softer USD. Improving risk sentiment ahead of the inauguration of president-elect Trump later in holiday-thinned US markets. US markets will be quiet with Martin Luther King Day. Investors will pay close attention to President Trump's comments in his inauguration speech to see if he will maintain his tough stance or take a softer tone on tariffs and China. Markets expect the Euro to remain under pressure in H1/25 with the prospect of US tariffs and diverging interest rate policy between the Fed & the ECB.
GBPEUR tumbles to a fresh 5-month low as recent UK economic data and comments from the BoE led investors to increase speculation of more BoE interest rate cuts.
GBP continues to straddle 1.2200 amid an easing USD as markets await President Trump's second term. The pound holds steady against the USD amid improving risk-on sentiment and caution ahead of President Trump's terms 2nd term. Domestically, softer-than-expected December inflation data has increased expectations that the BoE will take a softer stance on interest rates in Q1-25. This week's focus will be on UK employment and Claimant Change on Tuesday and Friday, UK PMI's report to help provide guidance for the BoE's next interest rate decision.
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