Summary
- US Dollar (USD): Strengthened following comments from President Trump regarding plans for larger tariffs, boosting risk aversion. Safe-haven currencies such as the Japanese Yen (JPY) and Swiss Franc (CHF) benefitted.
- Pound Sterling (GBP): Showed caution due to fears of stagflation in the UK, with a potential BoE rate cut next week weighing on sentiment.
- Euro (EUR): Fell sharply against the USD as investors anticipated a potential ECB rate cut later this week.
- Australian Dollar (AUD): Declined further amidst Trump’s tariff threats and China’s weaker-than-expected economic data.
- Canadian Dollar (CAD): Saw modest gains against a recovering USD, supported by stabilising oil prices.
Currency Pair Analysis
GBP/EUR
Summary:
GBP weakened against the EUR as stagflation concerns in the UK deepened. However, the EUR also faced selling pressure due to expectations of an aggressive ECB rate cut on Thursday.
Outlook:
- GBP may remain under pressure ahead of next week’s BoE rate decision.
- EUR could face further volatility leading into the ECB meeting, with a dovish policy stance potentially weighing on the currency.
GBP/USD
Summary:
GBP lost ground to the USD as Trump’s tariff comments boosted the US Dollar. The cautious sentiment surrounding the UK economy added to the Pound’s struggles.
Outlook:
- USD strength could persist in the short term, especially if US Durable Goods Orders and Consumer Confidence data outperform expectations today.
- GBP may see limited upside unless UK economic data surprises positively.
EUR/USD
Summary:
EUR/USD dropped sharply as the USD regained momentum on higher Treasury yields and Trump’s aggressive tariff plans. ECB rate cut bets further pressured the EUR.
Outlook:
- Focus will remain on the US Federal Reserve’s policy decision tomorrow, followed by the ECB meeting on Thursday.
- Any dovish signals from the ECB could push EUR/USD closer to the 1.0400 level.
AUD/USD
Summary:
AUD declined amid increased risk aversion stemming from US tariff threats and weak Chinese data.
Outlook:
- Market participants will monitor Australia’s Q4 CPI data due tomorrow, which could shape the Reserve Bank of Australia’s next moves.
- Risk sentiment tied to US-China trade developments remains a key factor.
USD/CAD
Summary:
USD/CAD edged higher as the USD strengthened. A recovery in oil prices provided some support for the CAD, limiting the pair’s upside.
Outlook:
- The Bank of Canada’s rate decision tomorrow will be pivotal, with a potential rate cut expected to weigh on the CAD.
- US data releases today could drive short-term moves.
USD/CHF
Summary:
USD/CHF rebounded as the USD gained strength, supported by Trump’s comments and rising bond yields. The Swiss Franc weakened on dovish guidance from the Swiss National Bank (SNB).
Outlook:
- USD/CHF may trend higher if risk aversion persists and the SNB maintains its dovish stance.
Final Summary
USD regained dominance today as President Trump’s tariff threats lifted demand for safe-haven assets and pressured risk-sensitive currencies. Key events this week include central bank meetings and significant economic data releases, which will likely shape currency movements further.
Written by: Ian Morley