Asset Summary – Monday, 23 February
US DOLLAR is exhibiting mixed signals, leading to uncertainty in its near-term direction. The dollar is receiving support from pullbacks in other major currencies like the British pound and Canadian dollar, as well as anticipation of a smaller Fed balance sheet under incoming Fed Chair Warsh. However, uncertainty surrounding President Trump’s trade policies, particularly the imposition of new tariffs, is weighing on the currency. The market is assessing the potential impact of these tariffs on the US balance of payments and whether existing trade deals will be affected. The dollar’s ability to sustain recent gains hinges on clarity regarding the future of US trade policy and the Federal Reserve’s approach to its balance sheet.
BRITISH POUND is experiencing a mixed outlook. Initially, it rebounded against the US Dollar due to USD weakness related to US trade policy uncertainty and was supported by strong UK PMI and retail sales data, alongside a record public sector surplus. However, more recent data indicates a potential weakening. Rising unemployment, increased jobless claims, and slowing wage growth in the UK are fueling expectations of a Bank of England interest rate cut, placing downward pressure on the pound. While the US Dollar is also facing some headwinds due to dovish Federal Reserve expectations, upcoming US data releases will be crucial in determining the direction of both currencies and influencing the GBP/USD pair. UK inflation data could also inject volatility.
EURO is facing a mixed outlook amid fluctuating trade dynamics and economic data. The Euro initially rebounded due to a weakening US Dollar and better-than-expected German business sentiment. However, renewed trade tensions between the US and EU, triggered by potential US tariff increases, are weighing on the Euro’s prospects. The market is uncertain about how these trade disputes will affect the Eurozone economy and the European Central Bank’s monetary policy, creating potential headwinds despite positive German economic signals. Upcoming inflation data from major Eurozone economies will be crucial in determining the Euro’s trajectory.
JAPANESE YEN is facing a mixed outlook. Initial strength stemmed from a weakened US dollar following fresh tariff threats by the US President and concerns over existing trade agreements. Japan’s Prime Minister’s commitment to a balanced fiscal strategy also aimed to stabilize the market. However, the Yen subsequently relinquished some gains due to softer-than-expected domestic inflation data, raising concerns about the Bank of Japan’s future interest rate policy adjustments. This suggests potential volatility in the Yen’s value, influenced by both global trade dynamics and domestic economic performance.
CANADIAN DOLLAR is facing downward pressure, trading near monthly lows against the US dollar. Trade tensions stemming from new US tariffs present a major challenge for Canada’s export-driven economy. Recent domestic inflation data suggests a potential cooling, which could prompt the Bank of Canada to reconsider its current monetary policy pause. The strength of the US dollar, fueled by hawkish Federal Reserve signals, further exacerbates the situation for the Canadian currency. While oil price gains offer some support, a narrowing yield advantage for Canada and renewed protectionist risks outweigh any positive impact from a favorable court ruling. Technical analysis indicates that the USD/CAD pair has found some support near 1.3645, but struggles to break above 1.3700, suggesting continued bearish sentiment while below this level.
AUSTRALIAN DOLLAR is currently experiencing mixed signals. While it has seen a slight increase due to a weakening US dollar influenced by renewed tariff concerns and expectations of Federal Reserve rate cuts, it faces downward pressure from trade uncertainty and investor repositioning. A hawkish stance from the Reserve Bank of Australia, fueled by strong economic data and inflationary pressures, is providing some support to the currency. However, its vulnerability to global sentiment and trade developments remains a key factor influencing its trajectory, as markets await key domestic data releases which will influence speculation on a March rate hike.
DOW JONES is expected to decline based on current futures trading. Investor uncertainty surrounding new tariffs imposed by the US administration is creating headwinds, especially given questions about their legality and congressional approval. This unease is leading to a reduction in holdings of riskier assets, impacting the Dow. Furthermore, weakness in related sectors, such as asset managers exposed to private credit, adds downward pressure.
FTSE 100 is facing downward pressure due to renewed concerns about trade tariffs, particularly after the Supreme Court’s ruling and the subsequent revisions by President Trump. This uncertainty is negatively impacting stocks with significant exposure to US tariffs, with companies like AstraZeneca, BAE Systems, and BAT experiencing notable declines. However, the index’s losses are somewhat mitigated by gains in the financial and mining sectors, driven by increased demand for safe-haven assets like gold and silver. Additionally, JD Sports’ buyback plan and positive performance from miners like Fresnillo, Endeavour Mining, Antofagasta, Glencore, and Anglo American are providing some support.
DAX experienced a decline due to a confluence of factors creating uncertainty for investors. Renewed trade tensions, sparked by newly imposed tariffs from the US, weighed heavily on market sentiment, overshadowing any initial relief from earlier trade-related news. Heightened geopolitical risks, particularly concerning US-Iran relations, further contributed to the downward pressure. Specifically, industrial and technology sectors faced significant losses, pulling the overall index down, although gains in certain financial and consumer-focused stocks offered a slight counterbalance.
NIKKEI experienced a downturn, influenced by geopolitical uncertainty stemming from rising US-Iran tensions and caution surrounding upcoming US economic data releases which could impact Federal Reserve policy. Domestically, easing inflation figures in Japan also played a role, reflecting governmental attempts to alleviate living costs. Specific sectors like technology and banking faced significant selling pressure, with notable declines in key stocks. Furthermore, individual company news, such as Sumitomo Pharma’s sharp fall, contributed to the overall negative sentiment. Taking all this into account, a period of market closure for a holiday follows.
GOLD is experiencing upward price pressure driven by a confluence of factors. Renewed trade tensions stemming from tariff announcements are pushing investors toward safe-haven assets, increasing demand for gold. Simultaneously, geopolitical risks, particularly those involving the US and Iran, are further bolstering its appeal. A weaker US dollar, influenced by concerns about the US economy and potential Federal Reserve policy, is also contributing to gold’s rise. While recent US inflation data might suggest less urgency for rate cuts, market expectations of future rate cuts, coupled with a slowing US economy, continue to support gold’s positive outlook. The reopening of Chinese markets after a holiday could also lead to increased trading volumes.
OIL is experiencing a complex interplay of factors influencing its price. The possibility of a renewed US-Iran nuclear deal is creating downward pressure, as a successful agreement could lead to increased Iranian oil supply on the global market. Conversely, anxieties persist regarding potential disruptions to oil flow through the Strait of Hormuz, a critical chokepoint, providing upward pressure. Furthermore, the prospect of increased global tariffs introduces uncertainty about future oil demand, potentially weighing on prices. The market is closely monitoring these competing forces, making for a volatile trading environment.