What’s happening: The US dollar fell on Friday on prospects of lower-than-expected tariffs by President Donald Trump.
What happened: Expectations of Trump’s tariffs fuelling inflation and triggering an international trade war had supported the US dollar since the Presidential elections last November.
The Japanese yen ended almost flat in a choppy trading session on Friday, after the Bank of Japan raised its benchmark interest rates.
Why it matters: Expectations of high tariffs on goods from several countries had raised concerns around higher inflation, which would prevent the Federal Reserve to cut interest rates. Higher rates support the US dollar.
After President Trump’s inaugural speech and order passed last week, expectations of high tariffs have somewhat eased. Last week the US President even said that he had had a friendly conversation with China’s premier Xi Jinping and is looking at reaching a trade agreement with the Asian nation.
The Chinese yuan moved higher following comments from Trump, hitting its highest mark in eight weeks.
The US Federal Reserve is widely expected to keep interest rates unchanged at its meeting later this week. Investors will look out for comments from Fed officials for insights into the possible move in March.
The Bank of Japan raised its interest rates to their highest level since the global financial crisis in 2008 and increased its inflation projections.
Data released on Friday showed business activity in the US fell to a ninth-month low in January amid higher price pressures. The S&P Global flash composite PMI declined to 52.4 in January, from 55.4 in the previous month.
US existing home sales rose to a 10-month high, growing by 2.2% from the previous month to an annualised rate of 4.38 million units in December. US consumer sentiment also fell for the first time in six months in January amid concerns over the labour market and prospects of higher prices for goods.
The US dollar index, which measures the greenback’s performance versus a basket of major peers, fell more than 0.5% to 107.47 on Friday, after surging to 110.17 on January 13 to record its strongest level since November 2022. The index lost around 1.7% last week, the biggest weekly decline since November 2023.
What to watch: Investors await the release of data on Chicago Fed National Activity Index (1730 UAE Time), new home sales (1900 UAE Time) and Dallas Fed manufacturing index (1930 UAE Time) from the US today. Analysts expect the Chicago Fed National Activity Index to improve to 0.1 in December, from -0.12 in November.
New home sales in the US, which grew by 5.9% in November, are expected to decline by 3.5% in December. Analysts expect the Dallas Fed’s Texas manufacturing activity index to rise to 4 in January, from a reading of 3.4 in December.
Context: Equity markets in the Europe closed mostly lower on Friday, as investors assessed the latest economic reports.
Details: Data released on Friday showed the HCOB flash manufacturing PMI for Eurozone climbing to 46.1 in January, from 45.1 in the previous month. The figure also topped market estimates of 45.3. The latest reading signalled the smallest contraction in the region’s manufacturing activity in eight months.
The HCOB Eurozone services PMI slipped to 51.4 in January, from 51.6 in December, while manufacturing PMI improved to 46.1 in January, from 45.1 in the previous month.
The STOXX Europe 600 Index fell 0.05% to close at 530.07 on Friday. Luxury stocks were among the top performers in the session after Burberry reported strong sales for its fourth quarter. The earnings release provided a boost to shares of LVMH, Hermes and Pernod Ricard.
Trump’s softer tone on tariffs on major trading partners lent some support to auto manufacturers, with shares of BMW, Mercedes-Benz and Volkswagen closing higher on Friday.
London’s FTSE 100 fell 0.73% to settle at 8,502.35, while Germany’s DAX 40 declined 0.08% and France’s CAC 40 bucked the overall trend and rose 0.44%.
What to watch: With no major economic reports expected from the Eurozone today, investors await the release of data on the unemployment rate and GDP growth rate on Thursday. The Eurozone GDP, which expanded by 0.9% year-over-year in the third quarter, is expected to grow by 1% in the fourth quarter. The unemployment rate is projected to remain at 6.3% in December.
The European Central Bank is gearing up to announce its interest rate decision on Thursday. Markets widely expect the ECB to cut rates from 3.15% to 2.9%.
Other Markets: US trading indices closed lower on Friday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 0.32%, 0.29% and 0.58%, respectively.
Although the Trump administration has frozen all US aid to foreign nations, Ukraine’s President Volodymyr Zelenskyy said military assistance to the country has not been impacted by the freeze. The news sent the RUB/USD pair lower in forex trading this morning.
China’s official NBS non-manufacturing PMI declined to 50.2 in January, from a 9-month high of 52.2 in December, exerting pressure on the CNY/USD forex pair.
Ireland’s consumer sentiment index edged higher to 74.9 in January, from 73.9 in the previous month. However, the easing of job expectations sent the EUR/USD pair lower in forex trading this morning.
Argentina received a raise by Moody’s Ratings in the long-term foreign currency sovereign credit rating from “Ca” to “Caa3”. However, Standard & Poor’s credit rating for the region remained at CCC, exerting pressure on the ARS/USD forex pair.
Canada’s new home prices fell by 0.1% in December, compared to a 0.1% gain in November. The latest reading coming in short of market estimates of a 0.2% increase sent the CAD/USD pair lower in forex trading this morning.
Germany’s Ifo business climate (1300 UAE Time), Ifo current conditions (1300 UAE Time) and Ifo expectations (1300 UAE Time), Brazil’s FGV consumer confidence (1500 UAE Time) and bank lending (1530 UAE Time), France’s unemployment benefit claims (1500 UAE Time) and jobseekers total (1500 UAE Time), Mexico’s balance of trade (1600 UAE Time), as well as Canada’s wholesale sales (1730 UAE Time).