Friday End of Week Overview

As we close out the week, the markets are reflecting a pullback in the U.S. dollar, with strength observed across the three major currencies we’re focused on. Key levels to end the week include:

Market Overview

• EUR/USD: Up 0.55% today, marking solid gains against the dollar. -
• GBP/USD: Sterling follows a similar trend, appreciating by 0.53%. -
• USD/CAD: The Canadian dollar is up 0.4%, completing a clean sweep of dollar weakness among the majors.

Bank of Japan Rate Hike

Overnight, the Bank of Japan raised its key interest rate by 25 basis points to 0.5%, marking the highest level since the 2008 global financial crisis. This move reflects a shift in Japan’s monetary policy, as the central bank also increased inflation projections for 2025 and 2026. 

• USD/JPY: The yen initially appreciated on the announcement, but those gains were erased by morning trading, with USD/JPY up 0.20%.

A Turbulent Start

The inauguration of the Trump Administration in the U.S. has seen a spike in currency market volatility. While the initial tone from President Trump focused heavily on tariffs, his tone has softened as he engages with global leaders.

• Focus on Inflation: Trump has shifted his attention to inflation, specifically through discussions with Saudi Arabia about reducing oil prices, which could help alleviate inflationary pressures in the U.S.
• Interest Rate Sentiment: The president has expressed a desire for lower interest rates, adding weight to recent moves in the U.S. dollar.

Market Positioning

Many market participants who had been long the 'Trump dollar' since the election are now reducing those positions, if not outright unwinding those trades. This reflects a recalibration of expectations as the new cabinet takes shape and a more measured policy focus emerges.

Looking Ahead: A Busy Week

Next week is shaping up to be eventful, with key economic and policy decisions across major markets:

• US: FOMC decision on Wednesday, offering insights into the Fed’s monetary policy stance. - Q4 GDP report on Thursday, which will be closely watched for growth signals.
• Eurozone: ECB policy decision on Thursday, with markets anticipating a 25-basis-point rate cut.
• Canada: Bank of Canada rate decision, where another 25-basis-point cut is also a possibility. - Forward guidance from all three central banks is expected to play a significant role in shaping market sentiment.

Conclusion

It’s been a busy and volatile week in the markets, with plenty of movement across currencies. As we wrap up, the focus shifts to next week’s key events, which promise further volatility and opportunity. Enjoy the weekend, and stay tuned for more updates as we enter an important week ahead.