Markets face uncertainty as President Trump's mixed signals on tariffs keep traders cautious. Key events this week include the Fed's rate decision, GDP data, and inflation figures. While Trump has softened his stance, potential tariffs on Mexico, Canada, and China loom. Gold hits near record at $2,785/oz as safe-haven demand rises, while the ECB is expected to cut rates amid economic challenges.
Traders Eye Fed, GDP Growth, and Inflation Data This Week
Markets remain under the shadow of uncertainty despite U.S. President Donald Trump softening his tariff threats. Traders are set to closely follow this week's Federal Reserve policy meeting and critical inflation data.
President-elect Trump officially took office last week following the inauguration ceremony. As soon as he assumed office, he signed numerous executive orders, though none included the tariffs that have unsettled markets for months. His statements throughout last week indicate that he currently has no urgent plans to implement tariffs.
Nevertheless, he intends to continue using tariff threats as a negotiation tool and is unlikely to refrain from enforcing them if he does not achieve his desired outcomes.
Trump announced that he would impose an immediate 25% tariff and several sanctions on Colombia for refusing to allow deported immigrants to re-enter the country. These tariffs were set to rise to 50% within a week. This announcement reignited trade concerns that had recently eased and strengthened the U.S. dollar against its rivals.
Subsequently, on Sunday, a White House statement revealed that Colombia had agreed to all of Trump's conditions. Still, Trump will sign the tariff and sanction order if Colombia fails to meet the terms of the agreement.

Trump has been prioritizing tariff threats as a primary weapon for policy disputes, leaving global markets on edge. Last week, he set February 1 as the date to impose a 25% tariff on Mexico and Canada. He also proposed a 10% tariff on China for the same date—significantly lower than the 60% he had mentioned during his campaign.
However, if these countries fail to meet his demands, Trump is likely to take a more aggressive stance. Analysts predict that a sharp escalation in tariffs could lead to higher U.S. inflation, narrowing the Federal Reserve's room for rate cuts. While concerns over tariffs have slightly subsided for now, uncertainty continues to keep traders cautious and limits losses for the U.S. dollar.
Goldman Sachs strategists estimate that traders have unwound about two-thirds of the tariff risk premium in the euro-dollar exchange rate. However, given the strong performance of the U.S. economy and the potential for further tariff measures in the coming months, they argue that the dollar could continue to strengthen.
As such, traders are expected to closely monitor both U.S. economic developments and Trump's policy actions for further clarity. Still, they may hesitate to significantly increase their short positions on the U.S. dollar due to high levels of uncertainty.
Meanwhile, early Thursday morning, Federal Reserve officials will convene for their first monetary policy decision of the year. Economists surveyed by Bloomberg unanimously expect interest rates to be held within the target range of 4.25% to 4.5%. This would mark the first pause in the rate-cutting cycle that began in September.
However, swap traders, who were expecting a quarter-point cut a week ago, now anticipate two quarter-point cuts this year, with the first one likely in June.
Following the Fed's decision, traders will focus on the U.S. economy's fourth-quarter performance report. According to Bloomberg's median economist forecast, the initial estimate of fourth-quarter gross domestic product (GDP) growth is expected to show a 2.7% increase. While this is lower than the 3.1% growth recorded in the previous quarter, the annual average growth rate is projected to exceed 2.5%.
Additionally, on Friday, inflation data that could shape expectations for Fed rate cuts will be released. The core personal consumption expenditures (PCE) price index, the Fed's preferred inflation gauge, is expected to rise by 0.2% in December, compared to 0.1% in the prior month. Economists also predict that the all-items PCE price index will increase annually from 2.4% to 2.5%, signaling slight upward pressure on prices.
Supported by safe-haven demand amid uncertainty, the U.S. dollar's losses have been limited. If robust growth and sticky inflation data emerge, the dollar could gain additional support.
Traders Turn to Gold as Safe Haven Amid Economic Uncertainty
Gold prices climbed to $2,785 per ounce last week, driven by safe-haven demand triggered by heightened uncertainty surrounding Trump's tariff policies, coming within a step of an all-time high.
In his first week in office, President Trump adopted a more moderate stance on tariffs than expected but continued to issue threats. This has increased market uncertainty and boosted demand for safe-haven assets. Money managers have raised their bullish bets on gold to the highest levels since October, benefiting gold prices.
The possibility of Trump pursuing a softer trade policy is easing inflation concerns while increasing bets that the Fed will implement more rate cuts than initially anticipated. This dynamic is weakening the U.S. dollar, providing additional support for gold prices.
On the other hand, the risk of aggressive tariff policies remains on the table if Trump fails to get targeted countries to accept his terms. This could keep demand for the U.S. dollar, another safe-haven asset, strong, potentially limiting further upside movement in gold prices.
While traders closely monitor Trump's policy actions, they will also pay attention to key U.S. economic data scheduled for release this week.
ECB Rate Cut Expected, Forward Guidance in Focus
Economic activity data released last Friday showed that the Eurozone's private sector expanded in January for the first time in three months. This was a positive sign for sentiment surrounding the region's economy, but recession risks persist, and the threat of potential tariffs from Trump could further weigh on economic activity. Therefore, the European Central Bank (ECB) faces tough decisions ahead this year.
Over the past year, economic activity in the region continued to contract, and inflation fell rapidly toward target levels. In response, the ECB cut rates by a full percentage point to support the economy. Due to the risk of inflation falling below the target level, the ECB was expected to continue its rate cuts this year.

However, according to a recent Bloomberg survey of economists, concerns over inflation have re-emerged, raising questions about whether the ECB might pause its rate cuts in the spring. The survey results indicate that economists expect ECB officials to announce a quarter-point rate cut at the monetary policy meeting on Thursday.
There is also a consensus for a rate cut in March. However, opinions start to diverge as of April. Year-end interest rate forecasts range between 1.25% and 2.5%, but more than 60% of participants estimate that the neutral rate—neither stimulating nor restricting the economy—lies between 2% and 2.25%.
Meanwhile, ECB President Christine Lagarde remarked at an event last week that they are very close to declaring inflation sustainably at the 2% target. However, she cautiously added that service prices are almost twice the target level, and the ECB needs to remain vigilant.
As a result, the ECB is likely to proceed with a quarter-point cut this week, as widely expected. However, the forward guidance provided by officials will be more critical for market pricing going forward.
Trade Smarter with Duhani Capital
Navigate these market uncertainties with a broker you can trust. Duhani Capital offers exceptional trading conditions to help you capitalize on every market movement. Experience swap-free trading across all instruments and industry-leading leverage up to 1:1000 to maximize your trading potential.