Markets Await Donald Trump's Inauguration Today
GBP
GBP/USD is currently trading at 1.2183 (interbank), while GBP/EUR stands at 1.1811 (interbank).
Investors are increasingly pricing in further Bank of England rate cuts for 2025, following weaker-than-expected UK retail sales and GDP data last week.
The BoE is widely anticipated to reduce rates by 25 basis points at its February meeting, with markets now forecasting over 75 basis points of total cuts this year, up from 65 basis points previously predicted.
This week, key UK employment and PMI data will be released. The three-month unemployment rate for November is expected to remain steady at 4.3%, while average earnings growth is forecast to rise to 5.5% from 5.2%. Meanwhile, January’s manufacturing PMI is forecast at 46.9, signalling ongoing contraction, and services PMI is expected to dip slightly to 51.4, marking the 14th consecutive month of expansion.
No significant events are scheduled for today.
EUR
EUR/USD has edged higher to 1.0312 (interbank).
This morning, Germany’s producer price index (PPI) rose by just 0.8% year-on-year in December, falling short of the anticipated 1.1% increase. The European Central Bank has already reduced interest rates four times since June and is expected to continue easing over the next six months, as inflation in the eurozone has dropped from double digits in late 2022 to slightly above the ECB’s 2% target.
Attention this week will turn to flash PMI data for Germany and France, with forecasts indicating slight improvements in manufacturing PMIs to 42.4 for France and 42.9 for Germany, though both remain in contraction territory. Additionally, Germany’s ZEW Economic Sentiment Index will provide further insights into the economic outlook.
Today’s events (GMT):
07:00 - German PPI (MoM) (Dec) – Actual: -0.1% vs Forecast: 0.3%
USD
The Dollar Index, which measures the US dollar against a basket of six major currencies, is down 0.16% at 109.16, though it remains close to the 26-month high of 110.17 reached last week. The index has risen 4% since the election, as traders anticipate that Trump’s policies will stimulate growth but also drive inflation, necessitating higher interest rates for longer.
Last week, slightly cooler core inflation data, dovish remarks from Federal Reserve Governor Christopher Waller, and reports of tariffs being introduced gradually prompted traders to factor in the likelihood of two rate cuts this year.
As Trump’s inauguration week begins, markets are watching closely for his initial policy decisions on tax cuts, tariffs, and other measures, as any concrete actions could extend the so-called "Trump trades" – characterised by a strong dollar, higher government bond yields, and bullish equity markets.
In addition, Bitcoin surged 2.9% on Monday to reach a record high above $107,500, driven by hopes within the crypto industry that Trump could become the first "crypto president," potentially ushering in a period of lighter regulation for digital assets.
The S&P Global flash manufacturing and services PMIs, set for release this week, will be key indicators of US economic activity. Manufacturing PMI contracted for the sixth consecutive month in December, reflecting ongoing post-election uncertainties.
Markets are now pricing in 42 basis points of easing for 2025, with shifting expectations contributing to the dollar’s first weekly decline in seven weeks.
Today’s events (GMT):
Donald Trump’s Inauguration
CAD
USD/CAD remains steady at 1.4465 (interbank) after reaching a fresh four-year high of 1.4473 yesterday.
The potential for tariffs on Canadian exports to the US continues to weigh on the Canadian dollar. Tomorrow’s Canadian inflation data will be in focus, with December CPI expected to decline by 0.5% month-on-month, down from November’s flat reading. Annual inflation is forecast to ease to 1.7% from 1.9%.
The Bank of Canada appears to prioritise economic growth, aiming to keep inflation within its target range of 1-3%. At its previous meeting, the BoC cut rates by 50 basis points to 3.25% but noted that further cuts would be evaluated on a case-by-case basis. Markets still largely expect another rate cut at the 29 January meeting, though some analysts predict the central bank may hold rates steady.
Oil prices are firm this morning, supported by optimism over tighter supply amid stricter US sanctions on Russia. Brent crude is trading at $80.63 a barrel, while West Texas Intermediate crude (WTI) is at $77.56 a barrel.
Today’s events (GMT):
15:30 - BoC Business Outlook Survey
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