Good morning
The introduction of US trade tariffs over the weekend has sent the US dollar marching higher. With Mexico and Canada hit with 25% tariffs, it is no surprise MXN and CAD have weakened since markets opened. China have had an additional 10% tariff imposed on imports to the US although there is talk China are in the mood to negotiate to some extent.. Global equities have been hit hard.
USDCAD had closed around 1.4525 but jumped to 1.4790 earlier this morning, now back at 1.4705. USDMXM had closed around 20.65 but hit a high around 21.28 overnight. Trump has warned EU that they will definitely be hit by tariffs ‘pretty soon’, he has been slightly less aggressive towards the UK, perhaps because we already have a trade deficit with the US, but we are certainly not out of the firing line completely.
EURUSD hit a low of 1.0210 overnight while GBPUSD saw 1.2450, each 150 pips or so off Friday’s close. As I type GBPUSD has just made it back to 1.2300, EURUSD still struggling at 1.0230 which leaves GBPEUR higher at 1.2025. ECBs Knot has since said that he’d expect tariffs to lead to higher US inflation and interest rates, and a lower Euro. He would prefer to see no retaliation but is well aware it is quite likely as and when EU are hit with tariffs.
AUDUSD suffered as you’d expect, trading to a low of 0.6090 against the USD, the lowest level since April 2020 when Covid was taking hold. GBPAUD now 2.0045. Slightly better than expected, although still gloomy Aussie retail sales data overnight did little to help AUD, overshadowed as it was by the new tariffs.
Despite the USD strength, USDJPY actually traded lower to 154.75 on the open but has since headed back up to the 155.90 area. GBPJPY has unsurprisingly seen some volatility, trading down from a close around 192.30 to 190.10, then back up to 191.50. BoJ minutes were released overnight which showed real concern over the weak Yen which could lead to further rate rises although BoJ are expected proceed with caution.
The tariffs will have far reaching implications for all. Higher inflation and lower growth are likely side effects. We do know Trump doesn’t like the US being taken advantage of but I would like to know what happens if the affected countries were to simply turn their backs on the US and start trading better together. Whether that is even a possibility I do not know. Therre have already been tit for tat tariffs imposed on the US by Canada, while Mexico’s President Sheinbaum is due to make a statement at midday today.
On inflation, Turkey announced their latest inflation figures this morning, coming in just around 1% above expectations at 42.12%.
I’d warned late last week that this week could be lively with plenty of data from UK, EU and US, including the all-important US nonfarm payrolls Friday. I’d not expected it to start quite as lively as it has, although anyone who saw my USDCAD trade idea last week will know I was concerned about possible CAD weakness. We’ll see how that all looks at expiry time this afternoon although buyers of the straight vanilla USDCAD call have already had ample opportunity to trade spot against it.
The weekend brought a surprise win for Spurs against Brentford, could this be the turning point? Arsenal beat Man City heavily while Man Utd woes continue, losing to Crystal Palace. Forest recovered from their 5-0 defeat to Bournemouth by beating Brighton 7-0, incredible. Chelsea take on West Ham this evening, looking at Spurs position in the table I think I’ll have to be quietly cheering for Chelsea.
England’s rugby team came up short against Ireland, once again struggling in the second half as they did in recent matches against NZ and Australia. France took Wales apart easily, Scotland beat Italy. Its going to be a good six nations tournament, I think.
Today brings EU inflation numbers and US ISM PMI’s, although something tells me these will be clouded to some extent by any ongoing tariff news, certainly if we see the introduction of EU tariffs. While the UK may get off a bit easier, I read that Starmer is meeting EU leaders, the first time a UK PM has done so since Brexit. Talks should be focussed on defence but I have no doubt trade will come up. Be interesting to see how this pans out, whether UK has to align itself closer to the EU or whether we can remain independent enough to get the best of both worlds, ie closer relations with EU while enjoying decent trade terms with the US.
Have a great day
- 09.00 German manufacturing PMI
- 10.00 EU HICP, CPI
- 14.30 CAD S&P manufacturing PMI
- 15.00 US manufacturing ISM
- 17.30 Feds Bostic speaks
- 21.45 NZ building permits
- 23.30 Feds Musalem speaks
- 00.01 UK BRC sales
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