On Friday, the US dollar was quoted at 108.28 as the non-farm data indicated that the Federal Reserve would continue to suspend interest rate cuts, and Trump said that he would announce reciprocal tariffs on many countries this week.
The seasonally adjusted non-farm payrolls in the United States in January were 143,000, a new low since October last year, and the unemployment rate was 4.0%, a new low since May last year, both lower than expected.
Trump's latest statement early this morning: a 25% tariff will be announced on Monday on all steel and aluminum entering the United States. Reciprocal tariffs will be announced on Tuesday or Wednesday. Committed to buying and owning Gaza, Middle Eastern countries will accept Palestinians after talking to me.
A US judge temporarily blocked the Department of Government Efficiency from accessing the Treasury Department's payment system, but temporarily did not restrict its access to the Department of Labor data.
Musk supports Ron Paul to lead the Federal Reserve audit.
The director of the White House Office of Management and Budget has suspended all activities of the U.S. Consumer Financial Protection Bureau.
According to the British Daily Telegraph: After Trump's threat, NATO countries discussed sending troops to Greenland.
Israel will hold a security cabinet meeting on the 11th to discuss matters related to the second phase of the ceasefire agreement.
Zelensky announced that he is willing to negotiate with Russia on the premise that the United States and Europe provide security guarantees for Ukraine.
European Central Bank Governing Council member Vujcic: US tariffs will not immediately trigger a 50 basis point interest rate cut.
German Chancellor says he can respond quickly to potential U.S. tariffs.
Gold rebounded from its recent lows after opening on Monday, trading around $2,865. As trade tensions escalate, investors have sought shelter in safe-haven assets, and gold prices have risen accordingly.
Trump said last Friday (U.S. time) that he plans to announce reciprocal tariffs on many countries on Monday and Tuesday this week, and they will take effect immediately. This is undoubtedly good news for gold, and I think investors will continue to pay attention to the possibility of a global trade war. David Meger, head of metals trading at High Ridge Futures, said: "The uncertainty of Trump's tariff policy remains one of the focuses of the gold market."
In addition, data released last week showed that the People's Bank of China increased its gold reserves for the third consecutive month, which is also one of the reasons for the rise in gold prices last week. David Qu, an economist at Bloomberg, believes that against the backdrop of rising global geopolitical uncertainty, the People's Bank of China may continue to increase its gold holdings in the long term and diversify its foreign exchange reserves.
On the other hand, the US non-farm data for January released last Friday showed that its labor market is still strong, which may be a reason for the Federal Reserve to continue to suspend interest rate cuts in the short term. Now the interest rate market believes that the Federal Reserve may only have room for one rate cut this year, which is expected to boost the US dollar and put downward pressure on commodities denominated in US dollars.
We have drawn three key conclusions from the market frenzy over the past week.
First, the recent headlines have not changed our view that tariffs are coming and will have a significant impact on the dollar. In fact, our economists now expect the actual tariff rate to rise by more than previously expected, although not to the maximum level threatened a week ago. As a simple measure, our economists previously expected the impact of the new tariff measures to be twice that of the first trade war, while our baseline forecast now is that the impact will be equal to three times that of the first trade war. It is worth noting that we believe that there are two types of tariffs currently being discussed: one is mainly used as a negotiating lever to obtain concessions, which are not included in our baseline forecast; the other is aimed at solving economic problems, such as increasing domestic production of certain products and narrowing the trade deficit. We expect the latter type of tariffs to be more likely to be introduced.
Second, the foreign exchange market has clearly reacted strongly to the risk of future two-way tariffs. A few weeks ago, investors were discussing whether tariffs were already “priced in” to FX prices and whether the dollar could outperform on tariffs as it did in 2018-2019; while the market seems to only see a low probability of these tariffs being implemented for a long time, the dollar overall rose about 1.2% on the news last weekend. Over the past two weeks, we have multiple studies showing a clear mapping between exchange rates and changes in tariff expectations - when tariff expectations rise, the dollar overall strengthens, the euro weakens, and the yen becomes a slightly safe haven. This is all similar to the reaction to the last trade war, although the reaction in interest rates and stocks is more subtle than last time. However, while there are still variables in tariffs, including ongoing negotiations, concerns about fentanyl, and post-holiday shipping timelines that will require several weeks for higher tariff rates to fully take effect, we believe the risk of the RMB responding to expected tariffs has slightly decreased. In addition, the market's repeated adjustments to tariff news may cause the initial market volatility to gradually weaken. Overall, however, market movements suggest that the dollar can still outperform if tariffs are actually implemented, and the foreign exchange market should be the preferred tool for cross-asset investors to hedge such risks.
Finally, the strong non-farm payrolls report suggests that the US economy is still supporting the dollar. Although we are still closely watching the forecast risks brought about by the failure of tariffs to be implemented and the more balanced global economic performance, at least for now, the US economy is still very strong, and the strength of the US dollar in recent months can be attributed more to changes in macroeconomic performance than to tariff expectations.
After the opening of Monday, the yen was under pressure to push the US dollar to rebound from a low level and break through the 152 mark, mainly due to Trump's tariff threats, which triggered market concerns that Japan would become the next target of tariff increases, coupled with the mild strength of the US dollar. In addition, last Friday's strong non-farm data reinforced the logic that Trump's policies may push up inflation and limit the Fed's room for interest rate cuts, providing support for the rise of the US dollar.
However, the market generally expects that the Bank of Japan will raise interest rates again this year, pushing Japanese bond yields to continue to rise, narrowing the interest rate gap with major central banks, and limiting the downside of the low-interest yen. However, we need to be alert that the yen may be under continuous selling pressure before the USD/JPY confirms the bottoming out.
From a technical perspective, although the 14-day RSI at the daily level is in the bearish range, it has not yet entered the oversold zone. In addition, it fell below the key support of 152.50 where the 100-day and 200-day moving averages meet last week, which reinforces the bearish outlook. Any rebound may be blocked near this level, but if it unexpectedly breaks through 153, it may trigger short covering and push the USD/JPY up further. On the downside, the key support is the support near the intraday low of 151.25. If it fails, it will look down to the support near the December 10 low of 151.00. A continued break below may test 150.50, and may eventually fall to the integer mark of 150. In extreme cases, there is even the possibility of falling to the support of 149.60, creating conditions for challenging 149.00 to 148.65.
This morning, Japan's unadjusted current account for December attracted market attention, with the surplus falling sharply to 1.0773 trillion yen from 3.3525 trillion yen in the previous month. Traders view the trend of the current account as a leading economic indicator, reflecting Japan's trade situation. The narrowing current account surplus indicates a deterioration in the terms of trade, that is, Japan's imports exceed exports, resulting in an overall reduction in demand for the yen relative to the US dollar. It has pushed the US dollar to rebound from its lows to above 152.00, and the rebound momentum seems likely to continue further.
Generally speaking, this situation may challenge the Bank of Japan's plan to raise interest rates further, as it may reflect broader economic difficulties. The top and second-in-command of the Bank of Japan recently said that if economic development and prices continue to meet the central bank's expectations, it may raise interest rates again. Although traders view the current account as a barometer of economic conditions, recent wage growth data still supports the Bank of Japan's plan to raise interest rates further. It’s just that the uncertainty of US tariff policy has added some haze to this plan.
In the US, consumer inflation expectations may attract much attention before the release of the US CPI in January. Economists expect consumer inflation expectations to rise to 3.1% in January. This may affect consumer spending plans in the short term. It should be noted that higher inflation expectations may lead to increased spending in the short term, which may trigger demand-driven inflation. Rising consumption and inflationary pressures may delay the Fed’s interest rate cuts, leading to higher demand for the US dollar.
This may also push the US dollar to break through the resistance of the 200-day exponential moving average (EMA). However, if it unexpectedly falls, it may push the US dollar back down to the 50-day EMA, releasing a potential bearish signal.