The United States has warned that the next stage of the ongoing tariff war could be introduced in early April, with potential impacts on the automotive, pharmaceutical, and semiconductor industries. President Trump hinted at a period between the announcement and actual implementation, though he did not clarify whether the USMCA trade agreement would provide exemptions for auto tariffs. Reports indicate that some auto components cross the border multiple times before final assembly.
Meanwhile, the US dollar is experiencing mixed performance against G10 currencies. The Reserve Bank of New Zealand enacted its third consecutive 50 basis point rate cut, pushing the Kiwi dollar up by 0.25%, making it the strongest currency in the G10 group today. Emerging market currencies, particularly in Central Europe, have shown notable weakness.
Asia Pacific Markets
The US dollar has strengthened against the Chinese yuan, reaching a four-day high of CNH7.2930. Since December 2024, it has fluctuated between CNH7.2350 and CNH7.3700. The People’s Bank of China (PBOC) continues to set the reference rate within a narrow band, with today’s fix at CNY7.1705.
The Japanese yen also saw movement, with the US dollar stabilizing after peaking at JPY154.80 last week. The currency remains below Monday’s high of JPY152.40 while holding steady above the JPY151.25-35 range. Japan's trade deficit widened significantly to JPY2.76 trillion in January, the largest shortfall in two years. Exports rose by 7.2%, driven by strong auto and ship sales, while imports surged by 16.7%, primarily due to increased demand for communication equipment and computers.
European Markets
The euro, which peaked near $1.0515 before the weekend, is retracing its recent gains, falling below $1.0425. The currency faces further potential decline, with key support levels near $1.04 and $1.0370. The eurozone's economic calendar remains light, with December’s current account surplus rising to €38.5 billion from €28.7 billion in the previous year. In Germany, the upcoming national election is unlikely to have a significant market impact.
The British pound has been fluctuating within a narrow range, briefly touching $1.2640 before pulling back below $1.26. UK inflation data showed a mixed picture, with headline CPI rising to 3.0% year-over-year, up from 2.5% in late 2024. Core inflation also climbed to 3.9%, reinforcing expectations that the Bank of England will likely maintain its current stance in the upcoming policy meeting. However, market sentiment suggests a potential rate cut in the second quarter.
American Markets
The US dollar remains under pressure, with the Dollar Index finding temporary support near 106.55 but failing to gain significant upward momentum. A close above the five-day moving average of 106.95 could be a positive signal, but the key technical level remains in the 107.30-107.55 range. Housing market data showed an unsustainable surge in December housing starts, which soared by 15.8%. A decline of around 6.5%-7.0% is expected in January's figures. Building permits have also been declining, falling in eight of the past 12 months. The Federal Reserve's recent comments reinforce its cautious stance, with expectations that the next Summary of Economic Projections may revise the forecast for rate cuts from two to just one in 2024. Despite speculation in some circles about a potential rate hike, the FOMC minutes may not support this view.