What’s happening: The US dollar fell on Monday following President Donald Trump’s latest comments on tariffs.
What happened: The US dollar index had surged to a three-week high in early trading on Monday, after Trump announced plans over the weekend to impose tariffs on Canada and Mexico.
The US President indicated on Monday that his government would pause new tariffs on Mexico for a month.
Why it matters: Over the weekend, US President Donald Trump had announced his plans to impose duties of 25% on imports from Canada and Mexico and of 10% on China, beginning Tuesday.
However, Trump said on Monday that the tariffs on Mexico and Canada would be postponed by a month, following successful talks with their leaders to stop the flow of illegal immigrants and drug trafficking. The tariffs imposed on China are scheduled to take effect on Tuesday.
The tariffs are projected to increase inflation in the US, curbing the Federal Reserve’s ability to cut interest rates. Prospects of interest rates remaining higher for longer supported the US dollar in early trading on Monday.
Markets are now pricing in only a 50% probability of the Federal Reserve announcing more than one rate cuts in 2025.
The delay in tariffs provided a boost to the Mexican peso, taking the MXN/USD sharply higher by more than 1% on Monday. Prospects of tariffs had sent the forex pair to its weakest in around three years earlier on Monday.
The CAD/USD surged to 1.4428 on Monday, after dipping to a mark not seen since 2003 earlier in the trading session.
Prospects of tariffs on the EU exerted pressure on the EUR/USD, which plummeted to its weakest level since November 2022.
The US dollar index, which measures the greenback’s performance versus a basket of major peers, fell about 0.5% to 108.96 on Monday, after hitting a three-week high of 109.88 earlier in the session.
What to watch: Investors will continue monitoring tariff announcements by the Trump administration.
Data on JOLTs job openings (1900 UAE Time) and factory orders (1900 UAE Time) will also remain in focus. The number of job openings, which rose by 259,000 to 8,098 million in November, is expected to decline to 8 million in December. Analysts expect new orders for manufactured goods in the US to decline 0.8% in December, following a 0.4% decline in November.
Context: Equity markets in Europe settled lower on Monday amid fears of tariffs by the US President.
Details: Over the weekend, US President Donald Trump announced tariffs of 25% on Mexico and Canada and 10% on China. Following talks with Mexico and Canada, the US decided to delayed tariffs on its North American neighbours.
Investors remained cautions, as Trump also pledged tariffs on the European Union and the UK, without issuing any date for the commencement.
Investors also assessed the latest economic data releases, which showed the annual inflation rate in the Eurozone accelerated to 2.5% in January, from 2.4% in the previous month. The figure came in above market estimates of 2.4% and marked the highest reading since July 2024, amid a sharp increase in energy prices.
The HCOB Eurozone manufacturing PMI was revised higher to 46.6 for January, from the preliminary reading of 46.1. The figure is also higher than December’s level of 45.1. However, the region’s manufacturing activity remains in the contraction zone.
The STOXX Europe 600 Index dipped 0.87% to settle at 534.85 on Monday. London’s FTSE 100 tumbled 1.04% to settle at 8,583.56. Germany’s DAX 40 and France’s CAC 40 lost 1.4% and 1.2%, respectively.
What to watch: With no major economic data scheduled for today, investors await reports on HCOB Composite PMI (1300 UAE Time), HCOB Services PMI (1300 UAE Time) and PPI (1400 UAE Time) from the Eurozone on Wednesday.
The HCOB Eurozone services PMI is expected to decline to 51.4 in January, from 51.6 in December, while the composite PMI is projected to improve to 50.2 in January, from 49.6 in the previous month. Analysts expect producer price inflation to increase 0.4% in December, following a 1.6% rise in November.
Other Markets: US trading indices closed lower on Monday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 0.28%, 0.76% and 0.84%, respectively.
Ukraine’s President Volodymyr Zelenskyy appealed again to the West for urgent support to Kyiv. The news sent the RUB/USD pair lower in forex trading this morning.
New Zealand’s number of building permits fell by 5.6% to 2,702 units in December. This being the sharpest decline since June exerted pressure on the NZD/USD forex pair.
Singapore’s manufacturing PMI slipped to 50.9 in January, from December’s reading of 51.1. However, the recent reading signalling expansion for the 17th straight month sent the SGD/USD pair higher in forex trading this morning.
Canada’s S&P Global manufacturing PMI declined to 51.6 in January, from 52.2 in the previous month, which exerted pressure on the CAD/USD forex pair.
Colombia’s manufacturing PMI rose to 53.8 in January, from 49.9 in the previous month. However, the COP/USD pair fell in forex trading this morning.
Spain’s unemployment change (1200 UAE Time), Central Bank of Brazil’s Copom meeting minutes (1500 UAE Time) and Brazil’s PPI (1600 UAE Time), Mexico’s business confidence (1600 UAE Time) and S&P Global manufacturing PMI (1900 UAE Time), as well as US Redbook index (1755 UAE Time) and RCM/TIPP economic optimism index (1910 UAE Time).