The Morning Update

Friday January 31st, 2025

Written by:
Paul Harrison

The USD firmed, oil prices eased, equity markets rallied, and US yields rose due to earnings boosts and tariff threats. The USD index edged higher and is set for its best week in nearly two months, with the US poised to put its first wave of tariffs on Canada & Mexico on Saturday. At the end of a volatile week for tech stocks, equity markets rallied following earnings from Apple and Intel, which boosted risk sentiment. "It is possible that Trump goes ahead with the 25% announcement for Mexico and Canada, which would be market negative," said Kumar, Chief Economist at Jefferies Intl Ltd. "However, we still view tariffs as a negotiating tool." Elsewhere, Oil prices eased, Bitcoin fell 1% to $104k, while Gold and Coffee hit record highs. In focus today, German CPI, CAD GDP, and the key US Core PCE report will help provide intraday direction to currency markets.

In other news. Markets brace for Trump tariffs, and US inflation data. China builds huge wartime military command centre in Beijing. Japan to loosen rules on rice reserves as prices soar. Canada warns Trump's tariffs could leave us reliant on Venezuela's oil. Trump's foreign aid freeze sparks global funding crisis. European stocks on track to outpace rivals in January. Wise ordered to pay $2.5mn in US for misleading fee advertising. UK house prices rise less than expected in January. Oil prices stall as traders await Trump decision on Canada oil tariffs. Alberta Premier Smith pitching joint Canada-US NORAD military base in Arctic.

In currency markets. JPY is set for its best January since 2018, while the USD firms ahead of Saturday's US tariff deadline. CNY is up 0.1%, while Asian currencies weaken by 0.3% on average against the USD. Trading currencies remain under pressure, with JPY & ZAR weakening 0.35%, MXN easing 0.25%, SEK, NZD, CHF & NOK down 0.15%, and AUD is flat against the USD.

In commodity markets. Oil prices down 0.1%. Natural Gas rallied by 1%. Gold prices is flat. Silver prices strengthened by 0.5%. Copper & Soybean prices weakened by 0.5%, while Wheat prices tumbled 1.5%.

CAD is ending the month under pressure against the USD, down nearly 1%. The weakness is due to the increasing divergence in interest rates and the threat of 25% tariffs starting on February 1st. Year over year, the loonie has fallen over 8%. Most of the weakness came in Q4/24 following Trump's victory, which saw the CAD tumble from 1.34 to testing 1.45 today. The focus will be on the US Core PCE & CAD GDP report, which will drive intraday direction, but we expect investors will remain cautious ahead of the expected US tariff announcement.

EURCAD continues to advance as the threat of US tariffs continues to keep the loonie under selling pressure.

EUR stalls below 1.0400 as softer German regional inflation pressures the single currency. However, the euro remains more resilient than expected, as the threat of possible global US tariffs, weak US economic growth, and the prospect of further ECB easing in 2025 are all negative for the single currency. Domestically, French and German regional inflation levels fell, shifting focus to German inflation levels later in the morning. The focus will be on the critical US Core PCE report and German inflation levels to help provide intraday direction.

GBPEUR is edging slightly higher and looks set to finish the week higher, as softer EU inflation levels support further ECB easing.

GBP holds steady at 1.2400 ahead of the US inflation report. The pound continues trading within a tight range amid a steady USD and stabilizing risk sentiment. The UK remains off Trump's tariff threats, which provide some comfort to investors and help to underpin the pound. Domestically, UK house prices missed expectations, rising less than expected in January. Intraday will focus on the US inflation report and next week's critical BoE interest rate decision on February 6th.