US President Donald Trump has officially launched his long-discussed tariff war with Canada, Mexico, and China, signing an executive order over the weekend to impose heavy tariffs on these major trade partners. This aggressive move sparked a market risk-off sentiment, driving the US Dollar higher early on Monday. As a result, most major currencies and commodities were hit hard, despite positive news from China, including an upbeat Caixin Manufacturing PMI after its week-long holidays. Interestingly, while crude oil prices surged, cryptocurrencies took a significant dive. Traders are now looking for signals of retaliatory actions from Canada, Mexico, and China, especially ahead of Trump’s calls with their respective leaders.
Along with the risk aversion caused by the tariff war, Friday's positive inflation and employment data have raised expectations that the US Federal Reserve may slow or even stop rate cuts in 2025. This has helped keep the US Dollar strong, putting additional downside pressure on riskier assets like equities, commodities, the Antipodean currencies, and cryptocurrencies.
US President Trump’s announcement of tariffs on China, Canada, and Mexico, with potential tariffs on Europe and the Asia-Pacific region, has heightened trade war fears. This, coupled with dovish remarks from European Central Bank (ECB) officials, pushed EURUSD to a three-week low. Similarly, GBPUSD faces downward pressure from a stronger US Dollar and ongoing trade war concerns, despite the lack of significant UK news.
Meanwhile, USDJPY struggles to benefit from typical risk-off behavior, even with the Japanese Yen’s traditional safe-haven status and hawkish Minutes of the Bank of Japan’s (BoJ) January meeting. That said, despite extending Friday’s recovery, USDJPY resists gaining significant upside momentum recently.
China's return from the Lunar New Year holidays, coupled with a steady Caixin Manufacturing PMI above 50.0, couldn’t prevent a slide in the currencies of its major trade partners like Australia, New Zealand, and Canada. Among the G10 currencies, NZDUSD suffered the biggest drop amid growing economic concerns, while AUDUSD, acting as a risk barometer, slumped despite mixed Aussie data.
Meanwhile, USDCAD surged to its highest level since March 2003, rising over 1% intraday, driven by fears of a Canadian recession and increased expectations for rate cuts by the Bank of Canada (BoC). This move came even as crude oil prices—Canada’s key exports—spiked, highlighting the Loonie’s vulnerability to broader market dynamics.
Despite a flight to safety in the markets, gold prices failed to gain traction and posted their first daily loss in three days. Hawkish comments from the Federal Reserve, coupled with growing pessimism about China—one of gold's major consumers—dampened demand for the precious metal. This marks a retreat from last week’s all-time high, with traders now awaiting political developments and the upcoming US Nonfarm Payrolls (NFP) report.
Meanwhile, crude oil defied the broader market trend, extending its winning streak to three days and gaining more than 1% intraday. The rise comes ahead of today’s Joint OPEC/non-OPEC Ministerial Monitoring Committee (JMMC) meeting. The oil rally reflects market concerns over potential supply chain disruptions due to the trade war, which could hinder energy flows, especially as OPEC+ signals no supply increases until the end of Q1 2025.
Despite the Trump administration pushing for Bitcoin reserves and a surge in ETF inflows, Bitcoin (BTCUSD) and Ethereum (ETHUSD) faced sharp declines early Monday. The market’s flight to safety, triggered by Trump’s tariff war, weighed heavily on the top cryptocurrencies. Adding to the pressure were concerns about resistance from major central banks, excluding the Federal Reserve, to include Bitcoin in their reserves. As a result, BTCUSD sank to a two-month low, while ETHUSD dropped to a six-month low, posting an intraday loss of more than 13%.
Headlines about the US tariff war will dominate as key risk factors this week, but the US ISM PMI and January employment numbers will also play a crucial role in shaping market movements. The US Dollar could maintain its strength, supported by hawkish Fed and trade war concerns, while gold might recover if China, Mexico, and Canada manage to strike deals with the US to avoid heavy economic damage. This could help riskier assets recover some early losses, but the overall trend favoring the US Dollar may keep them weaker.
May the trading luck be with you!
