FX UPDATE 20/01/2025

The US Dollar declined on Monday ahead of Donald Trump’s inauguration as president, with investors watching for policy announcements that could quickly impact the greenback. Trading volumes were expected to be low due to US markets being closed for the Martin Luther King Jr. Day holiday.

?

Investors are focused on the policies Trump will implement on his first day in office. At a rally on Sunday, Trump announced plans to impose strict immigration limits. Goldman Sachs strategists anticipate US policy changes will boost Dollar strength but warned of short-term risks due to market expectations of quick tariff actions. The Dollar index, which tracks the currency against six major peers, was down 0.32% at 109.08 at the time of writing, after reaching a 26-month high of 110.17 last week. It has gained 4% since the November presidential election as traders expect Trump’s policies to drive growth and inflation. “There are high expectations of Trump announcing trade tariffs under executive order along with many other policy announcements that could prompt further US Dollar gains,” according to Derek Halpenny, head of research global markets at MUFG.

?

Elsewhere, the Euro gained 0.39% to $1.031 but stayed near a two-year low reached last week due to concerns over tariff threats, Reuters reports.

?

Trump has threatened tariffs of up to 10% on global imports, 60% on Chinese goods, and a 25% import surcharge on Canadian and Mexican products. Trade experts warn that these measures would disrupt trade flows, increase costs, and provoke retaliation. On Monday, the Canadian Dollar fell to a five-year low of C$1.4486 per Dollar, while the Mexican Peso hit a 2.5-year low of 20.94 per Dollar on Friday.

?

In Japan, the Yen was last trading at 156.11 per Dollar, close to the one-month high of 154.98 reached on Friday. Sources told Reuters news agency that the Bank of Japan is likely to raise its policy interest rate this week, unless there are market disruptions when Trump takes office. Governor Kazuo Ueda and his deputy indicated last week that the central bank would discuss a rate hike during its 23-24 January policy meeting. A rate hike by the Bank of Japan would be the first since July, when the decision, along with weak US jobs data, startled traders and sparked a global market sell-off in early August.

?

In Australia, the Aussie Dollar, which is sensitive to trade flows and China’s economy, has rebounded from five-year lows. According to Commonwealth Bank strategist Joe Capurso, it could test resistance at $0.6322 if Trump's policy changes fail to meet market expectations. It was trading at $0.6214 at the time of writing.

?

Furthermore, the Indian Rupee strengthened on Monday, supported by gains in most regional currencies, as expectations of near-term volatility surged to a 17-month high ahead of Donald Trump's inauguration. At the time of writing, the Rupee stood at 86.4850 against the Dollar, up 0.1% for the day. Most Asian currencies rose, with the Korean Won and Chinese Yuan leading the gains.?

?

?