Trump Inauguration: Executive Orders, Tariffs, and Market Moves.

  • USD Tariffs in Focus: Markets are watching newly elected President Trump’s first executive orders, with emphasis on immigration, energy, and tariffs. Prediction markets estimate high odds of tariffs on China (56%), Mexico (54%), and Canada (45%), while the dollar remains near its recent high after a 10% rally since September.
  • Muted USD Action Today: With US markets closed for Martin Luther King Jr. Day and a quiet data calendar, dollar price action is expected to be subdued. Key events this week include Trump’s digital address at Davos and the January 29 FOMC meeting.
  • EUR Braces for Tariff Risks: ECB official Isabel Schnabel signals a likely EU-US trade conflict, which could hurt the euro. This week’s focus includes ECB President Lagarde’s speeches at Davos and eurozone January PMIs, with limited euro recovery expected.
  • GBP Under Pressure: EUR/GBP is steady near 0.8450/60, with sterling weighed down by fiscal risks. Key UK data includes November jobs (tomorrow) and December budget figures (Wednesday), but GBP/JPY could rise to 185 if the Bank of Japan hikes rates.
  • Key Levels to Watch: DXY could test 110 this week, EUR/USD may cap at 1.0400/0435 or fall to 1.0225 on strong US tariffs, and EUR/GBP could climb to 0.8500. Sterling’s outlook remains weak.

USD: Watching for Executive Actions
The big moment has arrived as financial markets brace for newly elected US President Donald Trump’s first executive orders. Key areas of focus include immigration controls and a potential national energy emergency to boost US oil and gas production. However, FX markets are paying close attention to potential tariffs and the impact on major trade partners. Incoming Treasury Secretary Scott Bessent recently hinted that tariffs could address unfair trade practices, bolster government revenue, and serve as a bargaining tool.

Online prediction platforms like Polymarket and Kalshi are pricing the likelihood of tariffs: China at 56%, Mexico at 54%, Canada at 45%, and the EU at a mere 7%. With the dollar rallying nearly 10% since late September, its momentum may hinge on how aggressive Trump is with tariffs. If his approach is more measured, the dollar could face a correction down the line, but not immediately.

Today’s price action might remain subdued with US markets closed for Martin Luther King Jr. Day and a quiet economic calendar ahead of the January 29 FOMC meeting. However, Thursday’s digital dialogue between Trump and global leaders at Davos could stir the markets. Overall, the DXY appears poised for another attempt at 110 this week.

EUR: Facing the “Trump Storm”
European Central Bank member Isabel Schnabel warned over the weekend that an EU-US trade conflict seems “very likely.” Despite low odds of EU tariffs in prediction markets, the euro could still face downside risk if universal tariffs materialize.

This week’s eurozone focus includes ECB President Christine Lagarde’s Davos speeches and January flash PMIs. With the market pricing 100bp of ECB easing this year (versus ING’s 125bp forecast), limited recovery is expected until Washington’s economic agenda becomes clearer.

EUR/USD may struggle to break above 1.0400/0435, while a harsher-than-expected tariff stance from the US could push it down to 1.0225.

GBP: Under Pressure
EUR/GBP continues to hover near the 0.8450/60 range, with limited prospects for sterling recovery. The UK’s fiscal challenges could weigh further on the currency, particularly if government spending cuts or Bank of England rate reductions are needed to address fiscal rules.

Key UK data this week includes November jobs data (due tomorrow) and December budget figures (Wednesday). However, GBP/JPY is the pair to watch as the Bank of Japan may hike rates by 25bp on Friday, possibly pushing GBP/JPY to 185.

For now, EUR/GBP could test 0.8500, and sterling’s outlook remains bleak.

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.