Significant changes in US trade policy are on the horizon, affecting countries like China, Canada, and Mexico. Although President Trump's first day in office did not introduce new tariffs, a memorandum initiated a comprehensive investigation into US trade relationships. This action has already impacted financial markets and currency exchanges, with various reactions worldwide.
Gold prices have shown bullish momentum, trading at their highest levels since early November, exceeding $2,730 on Tuesday. The rise in gold's value correlates with a decline in the 10-year US Treasury bond yield, which fell over 1% below 4.6% following Trump's tariff threats. This drop has pushed the XAU/USD higher, indicating investor confidence in gold amid economic uncertainty.
Currency markets also reacted to the evolving trade landscape. The EUR/USD recovered from daily lows, moving toward 1.0400 during the American session on Tuesday. Meanwhile, the GBP/USD rebounded from session lows yet remained below 1.2300 later in the day. Despite these recoveries, the US Dollar struggles to maintain its gains, finding it challenging to sustain bullish momentum as the effects of Trump's tariff rhetoric begin to diminish.
The broader economic context reveals additional insights. December's inflation rate stood at 1.8%, exceeding some forecasts but falling short of market expectations of 1.9%. The temporary GST/HST holiday in December resulted in a smaller-than-anticipated reduction in prices.
"Controlling for the tax distortion, price growth was mixed but is still consistent with further signs of underlying easing in price growth." – Nathan Janzen, RBC Economics' Assistant Chief Economist
The Canadian economy faces further challenges, with the CPI data influenced by the tax holiday extending into February. Concerns arise over a weakened GDP and elevated unemployment rates, potentially exacerbated by protectionist US trade policies.
"The CPI data will be impacted by the tax holiday into February, but a weakened Canadian GDP and elevated unemployment rate (with the potential for protectionist U.S. trade policy to make both worse) is pushing inflation expectations from businesses and households lower." – Nathan Janzen, RBC Economics' Assistant Chief Economist
"That leaves the risks on price growth tilted to the downside and argue for further BoC interest rate cuts." – Nathan Janzen, RBC Economics' Assistant Chief Economist
The cryptocurrency market witnessed notable movements following President Trump's inauguration. Bitcoin's price quickly corrected according to Santiment's data, yet social media platforms reflected significant greed and FOMO among traders. Bitcoin steadied above $102,000 on Tuesday after reaching a new all-time high of $109,588 the previous day.