Morning Bid: Trump's Back, So Is Volatility

A look at the day ahead in European and global markets.

The return of Donald Trump as President of the United States has already stirred up significant volatility in the financial markets, particularly among currency traders. On his first day back, the market reacted sharply to his speeches and policies, demonstrating just how much uncertainty surrounds his leadership.

Initially, Trump's inauguration speech did not mention any tariff threats, which led to investors selling the U.S. dollar. However, this calm was short-lived. Within hours, Trump announced plans to implement 25% tariffs on imports from Canada and Mexico starting February 1st. This unexpected move caused the dollar and the Mexican peso to drop sharply.

The recent fluctuations in the market are reminiscent of the volatility seen during Trump's first term in office. Investors remain on high alert, as Trump's unexpected announcements often serve as negotiation tools rather than final decisions. In previous situations, he has described himself as a dealmaker, and some traders found hope in his comments regarding TikTok and China, which hinted at potential negotiations instead of immediate tariffs.

Trump also addressed the European Union, suggesting that tariffs could be one of several methods to address the trade deficit. He proposed that increasing exports of U.S. oil and gas could provide another avenue for improvement. However, he did indicate that raising tariffs across the board is not something the U.S. is currently prepared to do.

As a result of these developments, currencies experienced wild swings. Despite initial losses, as of midday in Asia, the U.S. dollar made a modest recovery against a basket of major currencies, though it remained weaker than it had been earlier in the week.

The People's Bank of China stepped in to stabilize the yuan, setting its highest rate since early November. Given that Trump's tariffs are primarily targeted at China, analysts suggest that the yuan's gains may not last long.

The euro and the British pound both dipped by about 0.3%, while the Japanese yen saw strength due to market expectations that the Bank of Japan will tighten its policy. Concerns remain regarding how U.S. tariffs could impact Japan's auto industry, a significant factor for its economy.

Additionally, a cryptocurrency associated with Trump experienced a surge in value, surpassing $10 billion in market capitalization, which also supported gains in other cryptocurrencies like Bitcoin, which reached a new peak above $109,000 before falling back to just below $102,000 in recent trades.

Today's economic calendar for Europe includes significant data releases such as employment figures from the UK and the ZEW economic sentiment surveys from Germany.

EU finance ministers are convened in Brussels to explore ways to enhance competitiveness within the region. ECB Vice-President Luis de Guindos is also in attendance at this meeting.

As for U.S. monetary policy, no Federal Reserve speakers are scheduled to address the market this week since officials are in a silent period before next week's policy meeting.

Key economic indicators to watch today include:

• UK Payrolls (December)
• Germany ZEW Surveys (January)
• Canada Consumer Price Index (December)

Trump, Volatility, Markets