Dollar Slips as Stocks Remain Cautiously Positive Ahead of Trump’s Second Term and Key Policy Moves
The dollar edged lower, and stocks posted cautious gains on Monday as investors anticipated a wave of policy announcements during the initial hours of Donald Trump’s second presidency. Market participants are also keeping an eye on a potential rate hike in Japan later this week.
Trump is set to take the oath of office at noon Eastern Time (1700 GMT) and has promised a “brand new day of American strength,” a sentiment echoed at a rally on Sunday. Expectations are high for a series of executive orders to follow his inauguration. However, Trump’s unpredictability remains evident, highlighted by the launch of a digital token last Friday. The token surged above $70 before retreating to around $50 as traders grew wary.
Limited Immediate Market Reaction
With U.S. markets closed for a public holiday, immediate reactions to Trump’s inauguration are likely to emerge first in foreign exchange markets and later in Asian trading on Tuesday.
During the Asian session, U.S. equity futures dipped slightly, while the dollar, which has gained momentum since September due to strong U.S. data and Trump’s political rise, eased marginally. European and FTSE futures remained mostly flat, and Japan’s Nikkei index advanced by 1.2%.
Market Outlook
“There’s already a lot priced in,” said Nick Ferres, Chief Investment Officer at Vantage Point Asset Management in Singapore. “We’re maintaining a low net equity exposure overall because the rapid rise in yields and the dollar is becoming challenging for equity valuations.”
The dollar, which has risen over 8% against the euro since September, traded at $1.0306 on Monday, not far from its recent two-year high. However, analysts suggest that a more measured approach to U.S. tariff increases could temper the rally and attract some sellers.
Trump’s Tariff Threats Loom Over Global Trade, Market Reactions Mixed
Donald Trump has threatened sweeping tariffs, including up to 10% on global imports, 60% on Chinese goods, and a 25% surcharge on products from Canada and Mexico. Trade experts warn such measures could disrupt global trade flows, raise costs, and provoke retaliation.
Currency Movements
The Canadian dollar touched a five-year low of C$1.4486 per U.S. dollar on Monday, while the Mexican peso dropped to a 2.5-year low of 20.94 per dollar last Friday. Bitcoin also slipped early in the Asian session but remained above $100,000.
In bond markets, U.S. benchmark 10-year Treasury yields ended Friday at 4.61%, marking a nearly 100-basis-point rise over the past four months.
Spotlight on China
China remains a focal point as the primary target of Trump’s proposed trade measures. Investors were buoyed by stronger-than-expected Chinese economic data and an optimistic phone call on Friday between Trump and Chinese President Xi Jinping.
Hong Kong’s Hang Seng index surged 2.4%, and China’s yuan hit a two-week high of 7.3088 per dollar. “Everyone is waiting for these trade negotiations to begin and to see the tone Xi Jinping takes with Trump,” said Ken Peng, head of Asia investment strategy at Citi Wealth, emphasizing the critical role of their relationship in shaping policy.
The Australian dollar, closely tied to trade and China’s economy, rebounded from five-year lows. According to Commonwealth Bank strategist Joe Capurso, it could test resistance at $0.6322 if Trump’s policy shifts fall short of expectations. It was last at $0.6214.
Japan’s yen strengthened last week after remarks from Bank of Japan officials hinted at a potential rate cut on Friday. The yen traded slightly firmer at 155.97 per dollar, with an 80% chance of a 25-basis-point rate hike priced into markets.
Commodities Update
Gold traded at $2,706 per ounce, while Brent crude futures dipped amid speculation that Trump might ease restrictions on Russia’s energy sector in exchange for progress toward a truce in Ukraine.
