Donald Trump's highly anticipated return to the White House is sending ripples through global financial markets. Investors are keenly watching how his policies will impact the trading environment. Trump is expected to soon make a decision to push import tariffs higher, a move that could prove unfavorable for the European Union's (EU) export sector. Meanwhile, the European Central Bank (ECB) has cut interest rates by 25 basis points, signaling concerns over economic growth and inflation within the eurozone.
Market activity remains cautious as traders also keep an eye on the upcoming inauguration of President-elect Donald Trump on Monday. The major currency pair EUR/USD is oscillating within Thursday’s trading range, reflecting the uncertainty surrounding Trump's potential policy shifts. The US Federal Reserve continues to grapple with its dual mandate of maintaining price stability and maximum employment, as it has already taken measures to tame inflation and is expected to maintain an aggressive stance in the foreseeable future.
In addition to these political and economic developments, mid-tier US data is awaited, which could further influence market dynamics. The Consumer Price Index (CPI) Ex Food & Energy remains a critical measure, as it excludes volatile food and energy components to provide a more accurate gauge of price pressures. This data is compiled monthly by the US Department of Labor Statistics.
Market experts speculate that Trump's policies will likely boost inflation and economic growth but could also lead to a global trade war. Scott Bessent, Trump's treasury pick, emphasized the urgency of concluding the current tax regime to avoid burdening the middle class with a $4 trillion tax.
"If we do not renew and extend, then we will be facing an economic calamity,” – Scott Bessent
The ECB's recent minutes from its December meeting revealed that policymakers debated the pace of policy-easing more than pausing or continuing the cycle of interest rate cuts. The minutes also highlighted officials' concerns about growing risks of inflation undershooting the central bank’s target of 2%.
The US Dollar has shown strength, particularly against the Japanese Yen, while the US Dollar Index (DXY) ticks higher and holds the key support level of 109.00. These developments underscore the complex interplay between US domestic policies and international economic strategies.
As Trump's inauguration draws near, investors are bracing for potential shifts in the trading landscape. The focus remains on how his administration's decisions will reverberate through global markets, especially concerning tariffs and tax reforms.