Markets Uncertain Following Trumps First Few Days in Office
- Jan 23
- 2 min read
Updated: Feb 10
GBP : Pound under pressure with BoE rate cut likely
Thursday's Asian hours saw the GBP/USD stay muted for the second straight session, trading around about 1.2320. The US dollar (USD) gained strength as President Donald Trump issued a statement directing government agencies to look into and resolve persistent trade deficits, which presents difficulties for the pair. As traders anticipate that the US Federal Reserve (Fed) will maintain its benchmark overnight rate at its January meeting within the range of 4.25% to 4.50%, the greenback may continue to gain value. Furthermore, Trump's plans would increase inflationary pressures, which might restrict the Fed to one more rate cut.
Following weaker-than-expected UK inflation and retail sales data for December, weak labor demand in the three months leading up to November, and modest GDP growth, the Pound Sterling (GBP) is still under pressure, and traders are expecting the Bank of England (BoE) to cut interest rates by 25 basis points (bps) in February. It is almost a given that the BoE will lower rates to 4.5% at its next policy meeting.
EUR : The rebound has been underwhelming
The EUR/USD recovery this week has been rather muted. The 'all-clear' on tariffs is unlikely, as mentioned, and preserving uncertainty among trading partners was a tactic that kept the dollar strong throughout Trump's prior tariff measures in 2018–19.Ahead of tomorrow's release of the January Eurozone flash PMIs, traders might also be reluctant to reduce their Euro short holdings. Expectations that the ECB will ignore the recent spike in inflation and commit to a rate-cutting cycle of more than 100 basis points this year would probably be strengthened by another dismal set of confidence indicators.
The EUR/USD pair may hit the bottom limit of the $1.0350-$1.0450 range today if Trump announces anything more on tariffs. The FOMC meeting next Wednesday, the US December core PCE deflator next Friday, and the expected 1 February tariff deadline might all influence the next significant move.
USD : All ready for Trump's speech
The dollar's correction on Monday didn't last long at all. The early sell-off was a result of relief that the tariffs taken on Day One were not as harsh as many had expected. Now, though, focus is turning to two important future dates. President Trump has proposed 25% tariffs on Canada and Mexico and 10% tariffs on China if fentanyl and border concerns are not resolved by February 1st, so this date is also crucial. More dollar correction is probably being restrained by this impending danger. A thorough analysis of the ongoing US trade imbalances, which are in opposition to the America First agenda, must be completed by the US Commerce Department and the US Trade Representative by April 1st. Once suggestions are released after April, significant tariffs might be implemented.
Today's attention will be on Trump's digital speech in Davos at 16:00 GMT, where he might bring up international taxation as a new hot topic. Trump might target nations that implement the Global Minimum Tax set forth by the OECD, which would be in line with the interests of his allies in the IT sector. Any changes here could increase the likelihood of a Dollar incident.
