LONDON/SINGAPORE, Jan 20 – The dollar showed signs of softening, while global stocks maintained cautious upward momentum on Monday as financial markets prepared for a wave of policy announcements from Donald Trump’s second-term presidency. Investors are also watching for a potential rate hike in Japan later this week, adding to market anticipation.
As Trump prepares to take the oath of office at noon Eastern Time (1700 GMT), he has pledged sweeping changes to mark what he describes as “a new era of American strength.” At a weekend rally, he hinted at immediate actions through executive orders, leaving markets bracing for his typically bold and unpredictable approach.
Adding to the mix, Trump launched a digital token last Friday that initially surged past $70 before retracing to $50 amid market jitters. This development underscores the unpredictable nature of his policies and their potential influence on various markets.
With Monday being a U.S. holiday, the financial market’s response to his inauguration is expected to unfold in the foreign exchange markets and Asian trading on Tuesday.
Stock Markets Show Mixed Performance
European markets began with modest gains but later turned mixed. The pan-European STOXX 600 index slipped 0.2%, reflecting a cautious sentiment. Key indices across the region remained flat, with Spain’s IBEX 35 dipping 0.1%. MSCI’s global equity index registered a slight 0.1% increase, signaling a subdued global response.
In the bond markets, yields in the eurozone ticked higher by midday. French and German 10-year benchmark bond yields edged up by one basis point each, while UK 10-year yields rose by four basis points. Bond yields move inversely to bond prices, indicating some investor shift away from safe-haven assets.
Societe Generale’s Chief FX Strategist Kit Juckes remarked on the dominant role Trump’s policies are playing in shaping market sentiment. According to him, traders have positioned themselves heavily in favor of a stronger dollar, with bets reaching their highest levels since 2022.
Dollar Movement and Tariff Concerns
The dollar has strengthened significantly against the euro, climbing over 8% since September. Trading around $1.0317, it remains close to last week’s two-year high. However, analysts caution that if Trump’s proposed tariffs are implemented at a slower pace than expected, the dollar may see selling pressure.
Trump has proposed tariffs as high as 10% on global imports, alongside a 60% levy on Chinese goods and a 25% surcharge on Canadian and Mexican products. Such measures could disrupt global trade flows, increase costs, and prompt retaliatory actions from key trading partners.
Canada’s currency, the loonie, dropped to a five-year low of C$1.4465 against the dollar on Monday, highlighting the immediate impact of tariff concerns on U.S. trade partners.
Cryptocurrency Frenzy
Cryptocurrency markets experienced notable activity as Bitcoin surged 4%, hitting a new all-time high of $108,943 at one point. Trump’s newly launched digital currency, $TRUMP, grabbed attention by reaching a market valuation of nearly $12 billion, with trading volumes skyrocketing. Meanwhile, First Lady Melania Trump’s cryptocurrency launch over the weekend achieved a market cap of $1.9 billion.
Spotlight on China
China remains at the forefront of trade tensions, as Trump’s proposed levies disproportionately target Chinese imports. Despite this, better-than-expected Chinese economic growth data and a productive phone call between Trump and Chinese President Xi Jinping on Friday have bolstered investor sentiment.
Hong Kong’s Hang Seng Index rose 1.8%, while China’s yuan gained strength, touching a two-week high of 7.3088 to the dollar. Analysts view the relationship between Trump and Xi as a critical factor influencing future trade policies.
Ken Peng, Citi Wealth’s head of Asia investment strategy, noted, “The dynamics between these two leaders have become a key barometer for market expectations.”
Japan’s Monetary Policy and Commodities
The Japanese yen strengthened against the dollar last week amid speculation of an upcoming interest rate hike by the Bank of Japan. The yen was last trading slightly stronger at 156.335 per dollar, with markets pricing in an 80% chance of a 25-basis-point rate increase.
In commodities, gold held steady at $2,707 per ounce, maintaining its appeal as a safe-haven asset. Meanwhile, Brent crude futures dipped as speculation grew that Trump might relax restrictions on Russia’s energy sector in exchange for progress in Ukraine.
Outlook
As Trump begins his second term, global markets are in a wait-and-see mode, balancing optimism about policy announcements with the uncertainty surrounding trade and economic strategies. The coming days will likely set the tone for market dynamics as investors assess the new administration’s approach to economic governance and international relations.