- The US administration announced new tariffs affecting many more countries.
- The US unemployment rate unexpectedly eased from 4.1% to 4.0%.
- Economists expect US consumer inflation to increase by 0.3%.
Currency futures eased on Friday amid concerns of trade wars after Trump announced more tariffs. However, some rebounded on Monday as market participants geared up for crucial US consumer inflation figures this week that will shape the outlook for Fed rate cuts. These two factors will continue shaping market movements this year.
Trading survey (Source: JPMorgan Chase)
Over the weekend, the US administration announced new tariffs affecting many more countries. Trump plans to impose a 25% tariff on aluminum and steel imports. At the same time, he has promised a reciprocal tariff on imports from different countries. These new tariff threats dampened risk sentiment and increased worries about trade wars. As a result, traders dumped risky currencies, preferring the safer dollar.
Meanwhile, data on Friday revealed that the US economy added fewer jobs than expected. In January, there were 143,000 new jobs in the US, below estimates of 169,000. However, the unemployment rate unexpectedly eased from 4.1% to 4.0%, overshadowing the slower job growth. As a result, markets still expect the Fed to keep rates elevated this year.
However, the outlook will continue changing with incoming data. The next major report is the CPI, which is due on Wednesday. Economists expect consumer inflation to increase by 0.3%, slower than last month’s 0.4% increase. Meanwhile, the annual figure might remain unchanged at 2.9%.
An upbeat report will lower Fed rate cut expectations, boosting the dollar. On the other hand, a downbeat report might hurt the greenback by increasing rate cut expectations. This would be bullish for currency futures.
The Canadian dollar remained strong on Monday after a solid rally the previous week. The currency gained from relief after Trump paused a planned tariff on Canada for at least a month. This eased fears of a sharp economic slowdown in Canada.
At the same time, employment figures on Friday revealed that Canada’s economy added 76,000 jobs in January, above forecasts of 25,000. Meanwhile, the unemployment rate dropped to 6.6%. The data indicated a rebound in the labor sectors, easing pressure on the Bank of Canada to cut interest rates.
Elsewhere, the pound recovered on Monday after ending last week down. The Bank of England lowered borrowing costs by 25-bps. Moreover, the central bank forecasted weaker growth, leading to a decline in the pound.
