Morning Report
January 23, 2025
“The major pairs are consolidating this morning after the tariff-induced noise from earlier in the week. Trump’s speech in Davos is in focus today, and then the PMIs in the UK, eurozone and US will shine a light on growth tomorrow.”
Tim Hallinan – Trading Director
USD
A flurry of headlines on a range of policy topics has accompanied Trump’s first three days in office, but the dollar has primarily tracked the story on tariffs. The combination of a) no initial tariffs on day one, and b) watered down and unguaranteed tariffs on China in February, which were only floated in off-the-cuff comments, has encouraged markets to price out a big chunk of the dollar’s tariff risk advantage. It is difficult to imagine a significant drop in the dollar in the near term, however, because Trump’s baffling rhetoric and unpredictability are a deliberate part of the negotiating toolbox. That leaves his trading partners in constant limbo, but also the market too. Time will tell for concrete policy, and 1st Feb – when he says the first tariffs could come for China, Canada and Mexico – is turning into a key risk event.
Trump’s remote speech to Davos this afternoon is the headline today, where we can expect him to touch on some of the themes from his first week: energy, tax, trade, Ukraine, and DEI. There is a Bank of Japan rate decision in the early morning tomorrow, where the market has become increasingly convinced about a rate hike to 0.5%, although some dovish caution is likely to accompany it.
GBP
Sterling hit a two-week high against the dollar yesterday but is back below the 1.23 handle this morning. FX has been driven by US politics this week and the pound is no exception, having rallied a touch above 1% since Monday on the back of tariff relief. There is some CBI business confidence data this morning and a GfK consumer confidence figure in the early morning tomorrow, but the focus now is on Trump’s words in Davos and the PMIs first thing tomorrow. The consensus is looking for the UK economy to remain in stagnation at the beginning of 2025.
EUR
The euro struggled to push higher into the 1.04s yesterday and is ceding some of its post-inauguration gains this morning. Trump has made passing mention of his distaste for the EU’s trade surplus with the US, but we are yet to get any concrete threats and there appears to be appetite from European politicians to negotiate in the first instance. With growth still front of mind for the ECB, tomorrow’s PMIs are a risk and the market is expecting another sub-50 contractionary print.
Elsewhere in Europe, EUR/PLN fell to a near five-year low yesterday following NBP Governor Glapinski’s extremely hawkish rhetoric at last week’s press conference, where he suggested that rate cuts were still a long way off. In Norway, the Norges Bank is expected to remain on hold this morning but to keep the door open to a rate cut at the March meeting.
Markets
Trump’s announcement of up to $500bn in private AI infrastructure investment and some strong earnings from Netflix fuelled another leg up for stocks yesterday. Europe continues to be the leader in terms of equity gains this month, with the Stoxx 50, the DAX, and the CAC 40 all up over 6% so far in 2025, while the S&P 500 extended its rally to 3.5%.
Main Economic Events (All Times CET)
10:00am: Norges Bank Rate Decision
2:30pm: Canadian Retail Sales
2:30pm: US Unemployment Claims
5:00pm: Trump speaks at Davos
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