USD
Despite the closure of many US markets for MLK day, Donald Trump’s inauguration will nevertheless keep market focus squarely on that side of the Atlantic to start the week, with the dollar likely to dictate price action as a result. Perhaps most consequential for FX markets in the short term will be any announcements on tariffs, which Trump has previously suggested could come as soon as day one. With Trump set to assume the presidency at noon ET (5 pm GMT), that should leave traders nervously awaiting the inevitable stream of proclamations emanating from the White House this evening. As we have detailed previously, we think that tariffs on Mexico, Canada, and China should follow in short order – if not in the next 24 hours, likely by month end, with broader tariffs probable but not certain in the coming months. All told, that should leave the dollar to trade stronger, if our base case is realised. The one remaining question is when does that happen, and on that score, we will be waiting nervously with everyone else.
EUR
While last week ended with EURUSD continuing to track sideways around the 1.03 mark, this week the greenback should take the reins, with risks of another led lower for the pair. Short EURUSD has been a favoured market expression for Trump tariff risks post-election, meaning we see odds skewed towards a further softening, even if the eurozone is not impacted directly by tariffs immediately, as we expect. Beyond US risks, the data calendar for the bloc is light this week, but central bank speakers are set to be busy with Davos set to kick off today, with President Lagarde the headline act. In fact, the ECB president is due to speak twice this week, alongside a raft of other eurozone rate-setters, with markets likely to be keeping a close eye on any commentary around trade risks in particular.
GBP
Labour market data is the major domestic focus for sterling traders this week, albeit one we are inclined to discount given data reliability issues that continue to plague the Labour Force survey. Even so, consensus expectations project a rebound in wage growth, albeit one accompanied by a rise in the unemployment rate. If realised this should be enough to keep the pound trading in limbo, and at the mercy of a wrecking ball dollar. That said, we also think it is notable that sterling has traded under pressure in recent weeks, stemming from market angst around UK borrowing costs. This dynamic could well muddy the waters in the event of a miss in either direction tomorrow morning, especially against the backdrop of further uncertainty stemming from events in the US.
CAD
Given our views on US tariffs, the loonie looks set for a rollercoaster week, with risks skewed notably to the downside. That said, while events in the US are likely to dictate price action for the pair, the size of any moves will be exacerbated by political dysfunction in Canada. Justin Trudeau’s resignation announcement leaves the country without an effective government, at a highly inopportune moment. A volley of commentary from Canadian political leaders has done little to convince us that this is unlikely to change any time soon too – leaving us to continue predicting that USDCAD will reach 1.50 before mid-year.
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