Morning Report
January 24, 2025
“Another day, another set of Trump comments, and another move in the dollar – this time down to a one-month low. The pound is lagging this morning, however, as consumer confidence continues to plummet following the October budget.”
Sam Cornford – Head of Trading
USD
The dollar index has extended this week’s losses to over 1.5% since yesterday afternoon to hit a one-month low as Trump further softened his stance towards tariffs on China. His speech in Davos generated some headlines about his calls for OPEC to lower the price of oil and for the Federal Reserve to lower interest rates, arguing later that he ‘know[s] interest rates much better than they do’. Oil prices are heading for their worst week since November 2024. The dollar then dropped further overnight after he told Fox News that he believed a trade deal could be reached with China, and that he would prefer not to use tariffs to make it happen. That is a world away from his 60% threats from last year and gave the market an excuse to further price out remaining tariff risk premium. And if it sticks – something you cannot guarantee given his unpredictability – the greenback may go yet lower.
The yen has made the biggest gains this morning thanks to a relatively hawkish rate hike to 0.5%, where policymakers continued to signal a slow adjustment higher. In the US today, the focus is on the PMIs this afternoon, where the expectations are for a pickup to 55.6.
GBP
While GBP/USD has climbed higher on the Trump headlines, sterling is underperforming the euro this morning after a GfK consumer confidence measure crashed to the lowest level in more than a year. The gloom again stems from the fiscal choices made by the UK government back in October and the public’s lack of confidence in the extra borrowing driving growth. Evidence is piling up that companies are shedding jobs because of the rise in employment taxes, with Sainsburys yesterday announcing plans to slash 2% of the workforce amid ‘a particularly challenging cost environment’. The market is 99% sure on some easing on 6th Feb and total cuts this year have been ramped up to three. A weak set of PMIs could compound the bad luck for GBP/EUR this morning, with the 50.1 estimate alarmingly close to contractionary territory.
EUR
The euro is making a push towards 1.05 for the first time since mid-December this morning, as surprisingly upbeat PMI surveys have joined the Trump optimism in driving some upward momentum. Taking the gap between EUR/USD and the levels implied by the short-term rate differential, there is still some risk premium holding the euro back. But that gap has shrunk considerably this week as Trump has so far failed to follow through on his strong protectionist threats. It is difficult to call this morning’s PMI data from France and Germany good news, considering that Germany is still stagnating (50.1) and France continues to shrink (48.3), but both have significantly outperformed the even softer expectations, and the eurozone-wide composite figure may return to north of the 50.0 mark when it is released.
Markets
The S&P 500 notched a record closing high yesterday as Trump called for lower interest rates and oil prices at his Davos speech. European stocks continued their winning streak, too, while China’s CSI 300 surged 0.8% in the Asian session after the US president softened his tone on tariffs further.
Main Economic Events (All Times CET)
1:01am: UK GfK Consumer Confidence
6:00am: Bank of Japan Rate Decision
10:00am: Eurozone PMIs
10:30am: UK PMIs
3:45pm: US PMIs
4:00pm: US UoM Consumer Sentiment
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