Market News – Trump Talks Tariffs



Sterling strengthened last week amid a flurry of Brexit talk although concrete progress was difficult to find. Reports towards the end of the week said UK officials do not see a Brexit deal until next year. EU officials meanwhile signalled that they are not willing to negotiate on issues such as trade until progress is made on the Irish border. Looking at the economy, Friday’s data releases were poor, with industrial production, manufacturing production and construction output all falling short of expectations.

Notable data releases are absent this week, however we will hear the government’s Spring Statement tomorrow, which will include the latest OBR forecasts – most economists expect the growth estimates will be revised higher.


The US Dollar begins this week with some key risk events now in the rear-view mirror. Friday’s jobs report crushed expectations (313,000 versus a forecast of 200,000) has not led to any notable shift in interest rate expectations (March hike forecast at 90%.). Fears of a global trade war also eased late Thursday after President Trump confirmed Mexico and Canada would be exempt from the steel and aluminium import tariffs and suggested openness to further exemptions.

News over the weekend was limited with the US currency lacking in direction somewhat. Tomorrows inflation data is the next risk event for the Dollar with the headline rate seen at +2.2% – anything higher would mark the strongest increase since February 2017 and could add more weight to the ‘four interest rate hikes in 2018’ argument.


Thursday’s ECB meeting produced a choppy reaction in the Euro although sellers emerged victorious after ECB President Mario Draghi adopted a relatively cautious tone in the press conference. Euro buyers had latched on the removal of the easing bias in the statement, but we doubt there were many in the market who still believe the ECB would need to increase the size of the Asset Purchase Programme.

Last Sunday’s Italian election result has also been taken relatively well by the single currency despite the associated uncertainty that followed. President Sergio Mattarella will not begin consultations to decide who gets the mandate to form a government until after Easter, so this could take a back seat for the time being.

The Euro Group meets today and a report on Friday suggested that the exchange rates would be a topic of discussion. Euro Zone industrial production figures follow on Wednesday while February inflation data is released on Friday.


The Japanese Yen was among the weakest G10 currencies last week, losing ground amid a lack of safe-haven demand after North Korea expressed a willingness to discuss denuclearisation with the US. At the Bank of Japan, policymakers stood firm on Friday prompting minimal reaction in the Yen, while Governor Kuroda was keen to emphasize that there are no plans to change the current monetary policy framework or weaken it before the two-percent target is met.

Reports overnight state that Finance Minister Aso is under pressure to resign as he has been accused of selling land to a school developer with connections to Prime Minister Abe’s wife at a steep discount.

Also, due this week, PPI and machinery orders data tomorrow and industrial production on Friday. However, we expect the Yen will largely be driven by overall risk sentiment with North Korea and US tariff headlines.


The Swiss Franc dropped last week, suffering from a fate similar to that of the Japanese as safe-haven demand was limited by North Korean headlines. Month-on-month CPI was a touch shy of expectations on Tuesday but was largely ignored, as was an unchanged unemployment rate at 2.9%.

Domestic impulses could prove more important this week however with the SNB policy decision on Thursday, although no fireworks are expected with the benchmark rate seen on hold at -0.75%.


The Australian Dollar was among the strongest G10 currencies last week. There was not much good news on the domestic economy however, with soft reading for retail sales and Q4 GDP. January trade figures provided a bright spot with a 44.5% month-on-month surge in exports. The RBA policy decision on Tuesday fell on deaf ears as rates were left on hold.

The Australian Dollar has also begun this week on the front foot after reports that Australia would be exempt from the US import tariffs. Focus this week will be on the two RBA speakers with Assistant Governor Kent due tomorrow and Debelle on Thursday.


The Canadian Dollar finished last week on the front foot after US President Trump confirmed Canada, along with Mexico, would be exempt from the proposed steel and aluminium import tariffs. Their continued exemption is predicated on a successful conclusion to the North American Free Trade Agreement (NAFTA) talks. There was minimal reaction meanwhile to the Bank of Canadas decision, who left the benchmark rate on hold at 1.25%, and repeated that they will remain cautious in considering future policy adjustments.

This week is relatively quiet on the data front although focus is likely to be on any NAFTA developments. Bank of Canada Governor Poloz speaks tomorrow.


The New Zealand Dollar saw a modest strengthening last week, supported by the improvement in global risk sentiment amid few domestic impulses. Focus this week will be closer to home with Q4 GDP figures due on Wednesday.


The Swedish Krona hit a fresh multi-year low versus the Euro last Tuesday after Riskbank Governor Ingves said monetary policy needs to proceed cautiously, and it is too early and too big a risk to raise rates now. Policy dissenter Ohlsson offered some balance, arguing that now is the time to begin normalising monetary policy. The Swedish Krona strengthened thereafter to log a modest gain against the US Dollar for the week.

Investors will be looking ahead to some key macro releases this week with CPI data due tomorrow and the unemployment rate on Thursday.


The Norwegian Krone finished last week on the front foot, rallying on Friday after February CPI data surprised to the upside at +2.2% YoY (forecast at +1.8%). This stronger inflation data could factor into the Norges Bank interest rate decision this week where rates are expected to stay 0.50%.


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