OUR SUMMARY
The USD is gaining ground this morning, following President Trump’s weekend announcement of a potential 25% tariff on Colombian imports, though he quickly backtracked after Colombia agreed to take back undocumented migrants. This sequence of events highlights Trump’s unpredictability, and while the USD appears to be in a correction phase, further trade tariff decisions could lead
to renewed strength in the currency.
This week, both the Fed and ECB rate decisions are key focal points. The ECB meeting holds the possibility of a hawkish surprise, despite widespread expectations for a 25bp rate cut. If the ECB addresses inflationary pressures or signals a shift in the region’s economic outlook, markets may revise their rate cut
expectations for the year, potentially leading to a stronger EUR.
The Fed, meanwhile, is likely to resist Trump’s calls for rate cuts in their Wednesday meeting. They will likely emphasize the strength of the economy while also considering potential inflation risks from his fiscal policies. No rate cuts
are anticipated in this meeting.
Looking ahead, the US Q4 GDP data due Thursday is expected to show a slight slowdown in growth, from 3.1% to 2.6%. Additionally, Friday’s core PCE data is forecasted to reveal a slight uptick in inflation, rising from 0.1% in November to 0.2% in December. These releases will be closely watched for further clues
on the economic outlook.
