Global markets show volatility as Trump signals mixed stance on Chinese tariffs, announcing a 10% tariff from February despite initial reassessment hints. The dollar weakened 1.4% post-inauguration while gold nears record highs. Japan's hawkish policy strengthens the yen, and oil prices fall amid Trump's OPEC pressure. Rising unemployment claims at 1.9M fuel Fed rate cut expectations.
Will Trump's Approach to China Define the Dollar's Fate?
Since officially taking office earlier this week, President Donald Trump's statements have taken on a more moderate tone compared to his rhetoric during the election campaign. This shift has led to a cautious but optimistic sentiment in the markets.
During his inauguration speech, it appeared that Trump intended to reassess the tariffs expected to be imposed on Chinese goods. However, just a few hours later, he announced plans to implement a 10% tariff starting February 1. Following this statement, opinions on the tariff issue became divided.
Some believed Trump would not raise tariffs as aggressively as previously feared, while others viewed this as merely the beginning. Yet, one thing was clear: Trump's ambiguous statements increased uncertainty in the markets.
As market participants awaited further action for clarity, Trump stated in a Thursday interview that he preferred to avoid imposing tariffs on China. However, he also mentioned that this gave him tremendous leverage in negotiating with Beijing.
Trump is leaving the tariff issue open-ended. It's clear he wants to use tariffs as a negotiating tool, but his remarks do not fully justify the notion that he is retreating from tariff threats. This ongoing uncertainty continues to weigh on the markets.
Since the election results, the U.S. dollar had significantly appreciated against other currencies due to tariff expectations. However, since Trump's inauguration speech eased tariff concerns, the dollar has lost approximately 1.4% of its value. Still, uncertainty is prompting traders to remain cautious, which is limiting a sharp depreciation of the dollar.
Morgan Stanley strategists noted in a report that dollar bulls are waiting for a signal to enter short positions. The catalysts, they said, will be inflation data and decisions from the U.S. Congress. If inflation data by March shows progress toward the target rate, or if congressional negotiations on trade or fiscal policies drag on, it could disappoint dollar bulls.
The strategists also emphasized that traders might be more willing to add dollar short positions sooner or with greater conviction than anticipated, predicting further weakness in the U.S. currency.

Meanwhile, Trump's comments on interest rates further weakened expectations for a stronger dollar, which were already being questioned. He questioned Federal Reserve Chair Jerome Powell's decision-making process on interest rates and indicated plans to meet with him at the right time.
Referring directly to Powell, Trump stated, "I think I understand interest rates much better than he does. If I disagree with him, I'll make it known." It appears Trump continues to hold the belief, as expressed during his campaign, that presidents should have a say in monetary policy. This suggests a potential for ongoing friction between Trump and the Fed in the coming period.
Additionally, Trump declared that he would pressure Saudi Arabia to lower oil prices and vowed to immediately call for a reduction in interest rates. Trump argued that falling energy costs would significantly lower inflation, which in turn would automatically lead to lower interest rates.
Indeed, December figures showed that over 40% of the monthly increase in inflation was driven by energy costs. However, the persistence of service prices—one of the main drivers of inflation in the U.S.—remains an issue. Even if Trump succeeds in lowering energy costs as he suggests, it's uncertain how much this would reduce inflation or how much it would convince the Fed to cut rates.
Meanwhile, a rise in the number of people claiming unemployment benefits has bolstered expectations for Fed rate cuts. Data released on Thursday showed that the number of continuing claims for unemployment benefits surged to 1.9 million in the week ending January 11—the highest level since November 2021.
Initial jobless claims also rose by 6,000 last week to 223,000. With more unemployed individuals struggling to find new jobs, this trend, if it continues, could prompt Fed officials to take further action this year to avoid a cooler labor market.
In conclusion, the combination of Trump's potential adoption of a softer tariff policy and data fueling expectations of a more dovish Fed has the potential to weigh on the strength of the U.S. dollar. However, the current environment is rife with uncertainty. Until greater clarity emerges, traders are likely to view the dollar as a safe haven, potentially limiting its losses.
Gold Prices Near Record Highs Amid Tariff and Dollar Uncertainty
Gold prices have surged to near all-time highs, driven by growing expectations that Trump will adopt a softer stance on tariffs and the weakening of the U.S. dollar.
Last year, gold prices hit a record high of $2,790 per ounce at the end of October amid expectations of Fed rate cuts. However, following Trump's election victory, gold prices fell to the $2,500 range as his policies were anticipated to drive U.S. inflation higher and force the Fed to pause its rate cuts.
However, gold prices, supported by safe-haven demand stemming from uncertainties and central bank purchases, have recovered nearly all of their losses in recent weeks, despite high U.S. yields. This recovery has been further fueled by the uncertainty Trump has created regarding the global economic outlook, prompting additional safe-haven demand.
Traders remain cautious as they monitor Trump's next moves on tariff policies. While this caution has limited the decline in the dollar, demand for gold remains strong. However, if Trump maintains a moderate tone on tariffs and eases market concerns, increased risk appetite could place downward pressure on gold prices. That said, any dollar depreciation resulting from such a scenario could help limit gold's losses.
On the other hand, if Trump takes steps to increase tariffs, it could reignite expectations of higher inflation and fewer rate cuts, potentially leading to a decline in gold prices.
Trump's Energy Policies Spark Volatility in Oil Markets
Oil prices are heading for a weekly decline following Trump's announcement that he will pressure Saudi Arabia and OPEC to lower oil prices. West Texas Intermediate (WTI) crude has lost approximately 5% throughout the week, while Brent crude has fallen by around 3.5%.
Donald Trump addressed world leaders at the World Economic Forum via a virtual link. In his speech, the president touched on oil prices, stating that he would ask OPEC to reduce prices. He also threatened Russia with additional sanctions if it fails to reach an agreement to end the war in Ukraine. The most recent sanctions imposed on Russia have already restricted the flow of Russian oil, driving prices higher.
Meanwhile, Trump signed several executive orders immediately after officially taking office earlier this week. One of these orders declared a national energy emergency aimed at boosting domestic oil production.
Commenting on Trump's recent actions and remarks regarding energy policy, ING strategists emphasized that persuading OPEC to increase production is no easy task. They also noted that if production is indeed increased and prices fall, it could pose a significant challenge to substantially boosting U.S. oil production.
In conclusion, Trump's rhetoric about his willingness to lower energy costs may continue to exert downward pressure on oil prices. However, the possibility of additional sanctions on Russia or the failure of efforts to increase production could limit the downside movement.

Yen Gains as BoJ Signals More Hikes, Yuan Recovers on Tariff Easing
Inflation data released in the early hours of the day revealed that Japan's core inflation reached 3% for the first time in 16 months. Excluding fresh food, consumer prices rose 3% in December compared to a year earlier, marking a significant acceleration from the previous 2.7%.
A few hours later, the Bank of Japan (BoJ) announced its policy decision. Following a two-day meeting, policymakers raised the benchmark interest rate by a quarter percentage point to 0.5%—the highest level in 17 years. The bank also signaled the possibility of further rate hikes if its economic outlook materializes.
In response to the decision, the yen gained approximately 0.7% against the dollar, briefly dropping below the 155 level. Economists see a potential for further yen strengthening. Given the BoJ's relatively hawkish stance, an additional rate hike could occur in May, provided wage pressures are confirmed. This expectation may continue to support the yen's appreciation against the dollar.
On the opposite shore, concerns about China's economy eased slightly following Trump's moderate rhetoric on tariffs, leading to a recovery in the yuan against the dollar. Currencies of trade-reliant countries, such as Australia, also strengthened.
Although Trump's statements have somewhat reduced trade war tensions, his tariff threats remain on the table.
As a result, U.S.-China trade policies will be subject to negotiation, but the potential for disagreements or a sudden change in Trump's stance could keep China and regional economies on edge. This uncertainty may sustain high market volatility and encourage risk aversion among traders.
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