Donald Trump's inauguration has set a wave of optimism across the market, particularly after his audacious pledge to inject $500 billion into AI infrastructure. This announcement has invigorated investors, sparking predictions of technological advancements and economic growth. The news comes alongside a softer stance on US yields, following Trump's decision not to impose a 25% tariff on Colombia.
The dollar index commenced the week with a robust rebound, surpassing the 50-day moving average (DMA). This recovery underscores the renewed confidence in the currency as global markets react to the latest developments. Meanwhile, crude oil prices have experienced a significant rally, climbing nearly 20% from mid-December to mid-January. This surge reflects shifting dynamics in the energy sector, further influenced by European natural gas prices, which have skyrocketed over 25% within the same timeframe and are up almost 120% since their dip in February 2024.
Attention now turns to the Federal Reserve, which is anticipated to announce its latest rate decision this Wednesday. Fed members are expected to deliberate the potential inflation risks posed by Trump's expansive growth-driven and trade-restrictive policies. The capital market is abuzz with expectations of a series of interest rate cuts in both the Eurozone and the United States throughout the year.
The EURUSD witnessed a notable rally above the 1.05 mark last Friday but appeared softer as trading resumed this morning. Market participants are closely monitoring the European Central Bank (ECB), which is expected to cut interest rates by 25 basis points during its Thursday meeting. This decision is part of broader efforts to stimulate a sluggish European economy, which is projected to record a mere 0.1% growth in Q4 compared to the US economy's anticipated 2.7% expansion.
Market observers are also keeping an eye on the upcoming Q4 growth update for the US economy, set for release this Thursday. Early indicators suggest the American economy may have grown by 2.7% last quarter, with inflation pressures potentially rising from 1.9% to 2.5%. In contrast, the European economy's modest growth highlights enduring challenges within the region.
In Japan, the Bank of Japan's (BoJ) decision to hike interest rates and revise inflation forecasts higher did not trigger a significant response in USDJPY trading. This stability suggests that market participants had largely anticipated the BoJ's move, reflecting a measured approach to monetary policy adjustments.
As Europe braces for a cold winter, analysts predict continued pressure on natural gas prices due to plummeting reserves and escalating demand. This situation underscores the complex interplay between energy markets and broader economic conditions.