The USD firmed, oil prices rallied, equity markets slumped, and US yields mixed after the US tariff announcement. The USD rallied after President Trump delivered his promise of tariffs on Mexico, Canada, and China, causing their currencies to reach multi-year lows against the USD. Global equity markets and US futures have all slumped due to the fear that US tariffs will force companies to raise prices in response, accelerating inflation and causing consumers to pull back on spending. Goldman Sachs Group strategists said there's a risk of a 5% slump in US stocks because of the hit to corporate earnings. Elsewhere, oil prices rallied after US tariffs sparked supply disruption fears. Bitcoin weakens over 2.5% to $95,500 a three-week low, while Gold & Silver prices ease in early trading. Markets will continue to monitor the response to US tariffs from Canada, Mexico & China and updates on the potential tariffs against the EU. On the Economic calendar, markets will be focused on Monday's CAD Manufacturing PMI & US Manufacturing PMI. Tuesday, US Factory Orders, & Jolts Job Opening. Wednesday, China's Calxin Services PMI, US ADP Employment Change, & US Services PMI. Thursday, UK BoE Interest Rate decision, & CAD Ivey PMI. Friday, German Industrial Production, CAD Unemployment, US Average Hourly Earnings, & US Nonfarm Payrolls.
In other news. Trump tariffs in Canada as Trudeau calls for national unity. US aid agency in doubt after website goes dark and officials put on leave. Trump pledges to stop US assistance to South Africa over land law. Eurozone inflation rises to 2.5% in January. The EU to 'respond firmly' if Trump imposes tariffs. Trump suggests trade issues with 'out of line' UK 'can be worked out.' The WHO proposes budget cut after the US exit, defends it work. Russian energy facilities targeted by Ukraine's drones. Denmark PM repeats that Greenland is not for sale. Panama offers concessions to US after Rubio meets President.
In currency markets. US tariffs triggered CAD, MXN, CNY & EUR to weaken with fears an escalating trade war, and the ZAR tumbled after the US announced it will cut off funding. In India, the Rupee fell to a lifetime low against the USD as US tariffs unnerved global markets. CNY is flat, while Asian currencies tumbled by 0.7% on average against the USD. Trading currencies came under renewed selling pressure, with MXN tumbling 2.25%, ZAR, NOK, SEK weakening 1.25%, NZD, CHF & AUD dropping 0.9%, and JPY flat against the USD.
CAD initially tumbled to a multi-year low of 1.4793 after the US announced 25% tariffs on Canadian exports, and Canada responded with its retaliatory measures. The loonie recouped some of its losses as oil prices rallied on supply concerns, but the loonie looks vulnerable to further weakness with the prospect of further US tariffs. Investors will monitor updates on the expected call between Trump and Trudeau today. On the economic front, investors will be monitoring CAD Global Manufacturing PMI and the US ISM Manufacturing PMI to offer direction to the loonie.
EURCAD eased from an early high of 1.5122 after a knee-jerk reaction from US tariffs on Canada, but the EUR lost ground with the threat of tariffs on the EU, and the strengthening oil prices helped the loonie rebound.
EUR weakens below 1.0250 as risk-off sentiment grows following the US tariff announcement. Euro weakened over 1% in early trading after the US announced tariffs on China, Canada & Mexico, leaving investors expecting the EU will be next to the region to suffer US tariffs. "It will definitely happen with European Union. I can tell you that because they've really taken advantage of us." Trump said, and added that the EU take "almost nothing and we take everything from them." ECB Villeroy de Galhau said today that Trump's tariffs would increase economic uncertainty and added there would be further rate cuts.
GBPEUR rallied in early trading as the UK remains sidelined on US threats, while the Euro weakens with the prospect of US tariffs and expectations of further ECB rate cuts.
GBP has a volatile start as risk sentiment eases amid broad USD strength on tariff threats. The pound managed to rebound from intraday lows, as the UK's impact to US tariffs appears to be minimal compared to its peers. This week, alongside the ongoing threat of tariffs, investors will be focused on the Bank of England's interest rate decision on Thursday. The BoE is expected to cut interest rates by 25 bps again as the UK economy continues to stagnate. Intraday the US Manufacturing PMI report will help provide direction to the pound.