The US dollar traded on a positive note, close to multi-year highs, as market participants closely monitored political and economic developments following Trump’s inauguration.
Protectionist trade policies expectations were reinforced yesterday when he mentioned that 25% tariffs on Mexico and Canada could be in place as early as 1 February.
Such measures could spur inflationary pressures, potentially prompting the Federal Reserve to adopt a more hawkish tone. Although inflation is showing signs of slowing down, uncertainty surrounding Trump’s policies is keeping investors on edge, benefiting the greenback.
Meanwhile, the latest UK unemployment figures showed an unexpected rise to 4.4%. This data, coupled with easing inflation and sluggish economic growth, reinforces expectations that the Bank of England will cut interest rates at its February meeting. If realized, such a move could further undermine the pound, potentially driving it to multi-year lows and enhancing the dollar’s appeal.
In the bonds market, Treasury yields declined, with the 10-year note yield hovering between 4.5% and 4.6% after Trump abstained from imposing tariffs immediately. Volatility is expected to increase in the coming weeks, with US political developments and the Fed’s interest rate decision in focus. Strict trade policy coupled with expectations of a hawkish Fed outlook could support both US yields and the dollar.
