Forex Today: US President Trump speech at Davos to drive market action
Here is what you need to know on Wednesday, January 21:
Financial markets adopt a cautious stance midweek as investors await US President Donald Trump's speech at the World Economic Forum in Davos, during which he is expected to comment on the EU-US trade relations and the issues over Greenland. The US economic calendar will feature Pending Home Sales data for December.
Following the long weekend, Wall Street's main indexes opened under heavy bearish pressure as markets reacted to escalating geopolitical tensions. The Nasdaq Composite and the S&P 500 indexes both lost more than 2% on a daily basis on Tuesday. Meanwhile, the US Dollar (USD) Index closed the second consecutive day deep in negative territory. Early Wednesday, US stock index futures trade marginally higher, while the USD Index holds steady above 98.50.
US Dollar Price This week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the weakest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -1.11% | -0.65% | 0.09% | -0.56% | -1.14% | -1.81% | -1.17% | |
| EUR | 1.11% | 0.46% | 1.20% | 0.55% | -0.04% | -0.72% | -0.07% | |
| GBP | 0.65% | -0.46% | 0.49% | 0.08% | -0.50% | -1.18% | -0.53% | |
| JPY | -0.09% | -1.20% | -0.49% | -0.64% | -1.22% | -1.88% | -1.24% | |
| CAD | 0.56% | -0.55% | -0.08% | 0.64% | -0.56% | -1.24% | -0.61% | |
| AUD | 1.14% | 0.04% | 0.50% | 1.22% | 0.56% | -0.68% | -0.03% | |
| NZD | 1.81% | 0.72% | 1.18% | 1.88% | 1.24% | 0.68% | 0.65% | |
| CHF | 1.17% | 0.07% | 0.53% | 1.24% | 0.61% | 0.03% | -0.65% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
The UK's Office for National Statistics (ONS) reported early Wednesday that inflation in the UK, as measured by the change in the Consumer Price Index (CPI), rose to 3.4% in December from 3.2% in November. This reading came in above the market expectation of 3.3%. On a monthly basis, the CPI increased 0.4% after declining 0.2% in November. These figures failed to trigger a noticeable market reaction and GBP/USD was last seen trading in a tight channel below 1.3450.
Gold's impressive upsurge continued to Wednesday and the precious metal reached a new record-high near $4,900. XAU/USD corrects lower in the European morning but remains in the green at around $4,850.
Silver stays in a consolidation phase near $94.70 after registering marginal gains on Tuesday.
EUR/USD corrects lower after a two-day rally but manages to hold above 1.1700 in the European session on Wednesday. European Central Bank (ECB) President Christine Lagarde said that inflation would be slightly affected by new tariffs.
AUD/USD preserves its bullish momentum and trades slightly above 0.6750 early Wednesday. In the Asian session on Thursday, December employment data from Australia will be watched closely by market participants.
USD/JPY remains relatively quiet and moves sideways near 158.00 early Wednesday. Investors, however, grow increasingly concerned over surging longer-term Japanese government bond yields. Reporting on the matter, "the Bank of Japan (BoJ) being behind the curve is also creating selling pressure and this price action will pressure the BoJ to convey a more hawkish message to ensure inflation is brought back to target. The yen is notably weaker (mainly vs non-dollar crosses) and JGB market turmoil will likely reinforce yen selling ahead," said MUFG analysts.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
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