Francesco Pesole

The dollar is staying a little offered despite Donald Trump rebutting a report that his tariff policies could be more selective. We're also getting closer to some large-scale FX intervention from Japanese authorities. For today, look out for some firm US activity data and another round of sticky European inflation. The dollar could correct a little further – but not by much

Heading into Donald Trump's inauguration on 20 January, the dollar's inflation-adjusted exchange rate is at the highest level since 1985. Given Trump's policy set of tariffs, immigration controls, fiscal stimulus and regulatory relaxation - plus a strong US economy - no investor wants to stand in the way of the strong dollar juggernaut. Look for continued dollar strength and probably more central banks being forced to intervene to support their currencies

Scott Bessent's confirmation hearing is the highlight today. It's too early for him to talk the dollar lower

Today, all eyes are on Donald Trump's inauguration as the 47th President of the United States. Financial markets are bracing for a flurry of executive orders ranging from immigration to energy and possibly trade. On tariffs, betting markets are marginally priced in favour of tariff action against China and Mexico this week. After four months of being bought on the rumour, the dollar is now exposed to some selling on the fact – but there should be plenty of dollar buyers on dips

Trump said he will raise tariffs on Canada and Mexico by 1 February

The Riksbank has cut rates more aggressively than most over the past couple of years and we expect another cut on 28 January. But while 2024 was characterised by sluggish growth and elevated unemployment, a recent rebound in sentiment and housing activity hints at a better 2025. A global trade war remains a major risk, but for now, it looks like the Riksbank will cut rates just once more later this year, in either March or May. Anyway, there is a case for EUR/SEK volatility to recover from the current lows

The Bank of Canada is widely expected to cut rates on 29 January with a 25bp move looking as the most likely outcome amidst tepid growth, benign inflation and an unemployment rate that’s trending higher. US trade tensions present downside risks to growth and could force the BoC to cut deeper later this year. For now, CAD will anyway continue to respond almost only to Trump's tariff threat

This week's dollar correction has not gone too far. Despite the heavy one-way positioning of the dollar, investors lack clarity on the timing of Trump’s tariff threats, preventing them from reducing dollar holdings. Further consolidation is likely among the $ Majors as traders await a Trump dialogue in Davos today. Elsewhere we see downside risks to the Norwegian krone from today's Norges Bank meeting and see the Turkish lira staying attractive despite another 250bp rate cut today

As the rate cut was widely expected, markets are paying more attention to forward guidance and the latest outlook report

The Bank of Japan delivered a well-telegraphed 25bp hike, but surprised markets on the hawkish side by materially raising its inflation forecasts. We expect two more hikes this year which can pave the way for a stronger JPY outlook. In other news, Trump surprised by saying he’d rather not hit China with tariffs, adding short-term pressure on the dollar