EUROPEAN FX UPDATE: USD surges post-Trump tariff actions, JPY bolstered by safe-haven appeal, EUR/USD sits on a 1.02 handle

USD: DXY +1%; 109.53

• USD firmer vs. all peers after US President Trump announced 25% tariffs on Mexico and Canada (with the exception of 10% on Canadian energy products) and 10% additional tariffs on top of existing levies for China. The risk-aversion and potential ramifications for Fed policy are acting as the driving force for price action this morning. However, traders will need to frame this weekend's actions in the context of whether or not it suggests this will be a more durable feature of the US economy or a temporary state of affairs during negotiations.


• From a macro perspective, today's ISM manufacturing release is likely to take a back seat to trade tensions with the most notable data point this week from the US coming via Friday's NFP report. DXY has been as high as 109.88. If it crosses the 110 mark, attention will be on the 13th January YTD peak @ 110.17.

EUR: EUR/USD -1.1%; 1.0247

• Hit after comments from US President Trump that tariffs will definitely happen with the EU. EU said it rejects US President Trump's decision to hit Canada, Mexico and China with tariffs and it would respond firmly if the US imposed tariffs on Europe, according to FT. ECB's Villeroy noted that Trump's tariffs will increase economic uncertainty and there will likely be further rate cuts".


• Eurozone inflation data saw headline Y/Y HICP print at 2.5% vs. Exp. 2.4%, super-core 2.7% vs. Exp. 2.6% and services inflation tick lower to 3.9% from 4.0%. EUR/USD gapped lower onto a 1.02 handle with a current session trough @ 1.0212 but is yet to threaten the YTD low from January 17th @ 1.0177.

JPY: USD/JPY -0.1%; 155.01

• Marginally firmer vs. the USD on account of its safe-haven appeal. Macro drivers for Japan are lacking and therefore, global risk dynamics are likely to remain a key driver in the near-term. USD/JPY is back above its 50DMA @ 154.87 with a current session peak @ 155.88. The next upside target comes via the 28th Jan peak @ 155.97, the the downside, Friday's low sits @ 153.91

GBP: GBP/USD -0.7%; 1.2301

• Notably weaker vs. the USD but firmer vs. the EUR. US President Trump stated that the UK is also out of line but then suggested he is getting on well with PM Starmer. GBP is seeing shallower losses than some peers on account of its relatively smaller trade deficit.


• From a broader macro perspective, this week is BoE week with the MPC set to pull the trigger on a 25bps rate cut via an 8-1 vote split with lone dissent expected from external MPC member Mann. Focus will be on any clues over future easing plans. Cable has delved as low as 1.2250; lowest since 21st Jan (1.2229 was the low that day).

Antipodeans: AUD/USD -1.1%; 0.6141. NZD/USD -1.3%; 0.5562.

• Both markedly hit by the global growth impulse from Trump's trade war as well as suffering from their direct exposure to the Chinese economy. Other macro drivers include mixed Australian data, disappointing Chinese Caixin Manufacturing PMI and wide expectations for cuts from both the RBA and RBNZ this month.


• AUD/USD is at its lowest level since 7th April 2020 with a current session trough @ 0.6088. NZD/USD is at its lowest level since 13th October 2022 with a current session low @ 0.5517

CAD/MXN USD/CAD +1.1%; 1.4689. USD/MXN +2.2%; 21.1287

• Both hit hard by US President Trump's decision to impose 25% tariffs on Mexico and Canada (with the exception of 10% on Canadian energy products). Canadian PM Trudeau said the US tariffs violate the USMCA trade deal. Canada considering non-tariff measures, including minerals & energy procurement. Note, last week BoC Governor Macklem stated that the Bank can ease tariff pain but can’t fix damage and big increase in tariffs is a big disruption to the Canadian economy.


• USD/CAD at highest level since 2003; current peak @ 1.4793. Mexico ordered retaliatory tariffs against the US, will release details today (Monday 3rd February). USD/MXN at highest level since July 2022; current peak @ 21.0734.

03 Feb 2025 - 10:20- ForexEU Research- Source: Newsquawk