CAPITALDIGEST MARKET REVIEW, 03/02/2025

DOLLAR ADVANCES AFTER WHITE HOUSE REITERATES TRUMP TARIFF THREATS

The U.S. dollar advanced against major currencies on Friday, while the Canadian dollar weakened and the Mexican peso edged higher after the White House reiterated that President Donald Trump will impose tariffs on Saturday. Reuters had earlier reported, citing sources familiar with the tariff deliberations, that Trump would announce tariffs on Canadian and Mexican imports on Saturday but delay collection of the duties until March 1 and offer a limited process for certain imports to be exempted. White House spokesperson Karoline Leavitt denied the report, calling it “false”, adding that tariff duties would be published on Saturday and would take effect immediately. Earlier on Friday, U.S. Commerce Department data showed that the Personal Consumption Expenditures (PCE) Price Index rose 0.3% last month, the largest increase since last April, amid a surge in consumer spending, suggesting the Federal Reserve would probably be in no hurry to resume cutting interest rates. “It’s very much tariffs and the administration that’s driving this over-dollar-strength move; one of the biggest challenges is that the stronger dollar has been one trade that has sustained itself if you wanted to put out a theory that there’s a Trump trade out there,” said Marvin Loh, senior global market strategist at State Street in Boston.

STERLING SET FOR FOURTH MONTHLY LOSS AS UK ECONOMY SOFTENS

The pound headed for a fourth monthly loss on Friday, increasingly under pressure from investor concern about the outlook for the British economy, following January’s bond market turmoil and in light of weakening UK data. Sterling has fallen 0.7% in January, bringing losses since September’s 2-1/2-year high to more than 7.5%. Earlier this month, a selloff in global government bonds hit the UK market particularly hard, sending long-term gilt yields to their highest in decades, heaping pressure on finance minister Rachel Reeves. Yields have since retreated and sterling has recovered some stability, but a recent run of macro data has pointed to an economy that is slowing rapidly, with unemployment rising, falling consumer spending and weakening business activity. Mortgage lender Nationwide said on Friday showed the UK housing market lost some momentum in January, as prices rose by just 0.1% compared with December, but otherwise remained resilient. By Friday, the pound was set for a 0.4% weekly decline against the dollar, but a 0.5% gain versus the euro. “With nothing else on the docket, and no central bank speakers of note, we expect sterling to track euro moves through today’s trading, skewing risks in favour of further downside against the dollar,” Monex Europe strategists said in a note.

CANADIAN DOLLAR POSTS LONGEST MONTHLY LOSING STREAK SINCE 2016

The Canadian dollar added to its monthly decline against its U.S. counterpart on Friday in volatile trading as investors braced for the expected start of U.S. tariffs on Canadian goods, including on oil which some expected to gain an exemption. The loonie ended 0.2% lower at 1.4524 per U.S. dollar, or 68.85 U.S. cents, after moving in a range of 1.4374 to 1.4558. For the month, the currency was down 1%, its fifth straight month of declines. That is the longest monthly losing streak since 2016. On Thursday, it touched its weakest level in nearly five years at 1.4592. “How much mileage does it (USD-CAD) have on the upside is the obvious question that comes into play,” said Amo Sahota, director at Klarity FX in San Francisco. “Tech analysts are pointing to the highs from 2020 and 2016, which come in just shy of 1.47. Other people are targeting that it is going to skip through that with some ease and we’ll be facing 1.50.”01/01 U.S. President Donald Trump said he expects his administration to impose tariffs related to oil and gas around Feb. 18 and it could lower levies on some Canadian crude to 10%. Equity markets did not like the inclusion of oil, Sahota said. Canada’s main stock index closed 1.1% lower, with energy shares pacing a broad-based decline.

DOLLAR SURGES ON TRUMP’S TARIFFS, SENDING PEERS TO MULTI-YEAR LOWS

Asian stock markets slumped on Monday and European and U.S. equity futures pointed sharply lower after President Donald Trump’s tariffs on Canada, Mexico and China triggered fears of a broad trade war and a hit to global growth. The U.S. dollar shot to a record peak against the Chinese yuan in offshore trading, its highest against Canada’s currency since 2003 and the strongest against the Mexican peso since 2022. Japan’s Nikkei share average tumbled 2.9% and Australia’s benchmark – often a proxy trade for Chinese markets – dropped 1.8%. Stocks in Hong Kong, which include listings of Chinese companies, fell 1.1% upon reopening from Lunar New Year holidays. Mainland Chinese markets resume trading following the holidays on Wednesday. Pan-European STOXX 50 futures sank 2.7%, and U.S. S&P 500 futures dropped 2%. Trump slapped Canada and Mexico with duties of 25% and China with a 10% levy at the weekend, calling them necessary to combat the flow of migrants and fentanyl into the U.S.. Canada and Mexico immediately vowed retaliatory measures, and China said it would challenge Trump’s levies at the World Trade Organization. The tariffs, outlined in three executive orders, are due to take effect at 12:01 a.m. ET (0501 GMT) on Tuesday.

STERLING SLIPS AS U.S. TARIFF JITTERS PREVAIL

The pound fell against the dollar on Tuesday, looking set to break a three-day rising streak, as U.S. tariff threats retook the focus of currency investors after Monday’s selloff in technology shares and a rush to safe-haven assets. The greenback, which roared ahead after the U.S. election in November, has been under pressure recently, as the concrete tariff plans investors had braced for did not materialise after the inauguration of President Donald Trump. Expectations that trade policies under Trump could boost U.S. growth, but also push up inflation, had left markets betting on higher-for-longer interest rates, which in turn supported the dollar. On Monday, Trump said he planned to impose tariffs on imported computer chips, pharmaceuticals and steel. The Financial Times also reported on Monday that Trump’s pick for Treasury secretary, Scott Bessent, has been pushing for universal tariffs on U.S. imports, which would start at 2.5% and rise each month. This gave renewed support to the greenback against a broad range of currencies, while markets looked set to remain jittery. “After the last few days of more targeted tariff proposals on individual countries, this was a signal in the opposite direction,” said Michael Pfister, FX analyst at Commerzbank.