Weekly Trade Journal 15: The Market Fallout of Trade Wars and Central Bank Moves

Global financial markets are navigating turbulent waters, with trade policies, economic data, and central bank decisions driving major shifts in currencies and digital assets alike. The Asian, London, and New York trading sessions have each witnessed intense volatility, as investors react to the latest developments—from U.S. tariffs and interest rate moves to economic growth reports and inflation signals.

Meanwhile, Bitcoin and the broader crypto market continue to grapple with external pressures, including escalating trade tensions between the U.S. and China. Yet, amidst this uncertainty, institutional players like MicroStrategy—now rebranded as "Strategy"—are doubling down on their Bitcoin holdings, signaling a long-term bet on the future of digital assets.

This week’s analysis dives deep into these unfolding dynamics, exploring how trade wars, monetary policies, and economic indicators are reshaping currency markets and the digital asset landscape.

Asian Session: How Trade Policies and Economic Indicators Shape Currency Markets

The global currency markets are in a state of flux, driven by a combination of trade policies, central bank actions, and broader economic trends. Recent developments surrounding U.S. trade tariffs, monetary policy shifts, and economic data releases have significantly impacted major currencies such as the Japanese yen (JPY), Australian dollar (AUD), and New Zealand dollar (NZD) in the Asian session. By analyzing these events, we can gain insight into how global markets are responding to economic pressures and policy changes.

The Japanese yen (USDJPY) has faced considerable volatility, swinging between losses and gains due to shifts in global trade policies and monetary expectations. Initially, the yen weakened past 155 per U.S. dollar following the U.S. government's imposition of tariffs on Mexico, Canada, and China. While Japan was not directly targeted, its export-dependent economy remains highly sensitive to global trade disruptions. The yen was further influenced by the Bank of Japan's (BOJ) ongoing policy discussions, where the central bank hinted at further interest rate hikes to curb inflation.

However, in a contrasting turn, the yen rebounded beyond 152 per dollar, marking an eight-week high. This resurgence was driven by warnings from Japan's Finance Minister regarding persistent inflation risks and strong wage growth, particularly due to substantial winter bonuses. With the BOJ maintaining a stance that aligns future rate hikes with inflation trends, the yen's trajectory remains uncertain but supported by domestic economic resilience.

The Australian and New Zealand dollars have also been caught in the turbulence of trade wars and monetary policy shifts. The Australian dollar (AUDUSD) initially plummeted below $0.61, reaching its lowest levels since April 2020. Concerns over a global trade war, triggered by new U.S. tariffs on key trading partners, weighed heavily on the Aussie. Further downside pressure came from declining Australian retail sales, prompting speculation that the Reserve Bank of Australia (RBA) may adopt a dovish stance and cut interest rates to stimulate growth.

Similarly, the New Zealand dollar (NZDUSD) dropped sharply to around $0.553, its lowest level since March 2020. The currency's decline was fueled by fears of a trade war, weak Chinese manufacturing data, and market expectations of a 50-basis-point rate cut by the Reserve Bank of New Zealand (RBNZ). The Kiwi faced additional headwinds after China, its largest trading partner, reported weaker-than-expected services activity data.

However, both currencies staged partial recoveries after U.S. President Donald Trump postponed tariffs on Mexico and Canada for a month, temporarily easing trade-related concerns. The Australian dollar stabilized above $0.62, and the Kiwi rebounded to around $0.561, benefiting from broader U.S. dollar weakness and hopes of de-escalation in U.S.-China trade tensions.

Amidst these currency fluctuations, the U.S. dollar has strengthened broadly, driven by the implementation of tariffs on Chinese goods and Beijing's swift retaliation. The greenback's dominance was evident as it gained 0.3% against the yen and weighed on other major currencies.?Meanwhile, China’s response to tariff pressures will play a critical role in shaping future movements in commodity-linked currencies such as the Aussie and Kiwi. To retaliate against U.S. tariffs, China imposed its own levies, adding another layer of complexity to an already uncertain global trade environment.

As global trade policies shift and central banks recalibrate their strategies, currency markets remain highly sensitive to economic indicators and geopolitical developments. The Japanese yen continues to oscillate between strength and weakness, reflecting Japan’s monetary policy stance and inflation outlook. The Australian and New Zealand dollars, heavily tied to global trade, are navigating a challenging environment of rate cut expectations and economic slowdowns in key trading partners.

In the coming months, traders and investors will need to monitor geopolitical events, central bank policy decisions, and economic data releases to anticipate currency movements. Whether the trade war escalates or a resolution is found, the interconnectedness of global economies ensures that currency markets will remain a barometer of broader economic health.

London Session: Trade Policies, Economic Indicators, and Market Reactions

In the ever-evolving world of global finance, currency markets remain highly sensitive to trade policies, monetary decisions, and broader economic trends. Recent developments, particularly those driven by the U.S. administration’s trade stance and central bank policies, have caused significant fluctuations in major currencies, including the euro and the British pound.

The euro (EURUSD) has faced considerable downward pressure, recently slipping to $1.02, its lowest level in three weeks. The primary catalyst behind this decline has been the strength of the U.S. dollar, bolstered by aggressive U.S. trade policies.

Recent tariff announcements—25% on Canadian and Mexican imports and 10% on Chinese goods—have reignited fears of a global trade war. The European Union, which finds itself in the crosshairs of potential additional U.S. tariffs, has vowed to respond firmly if such measures materialize. This looming uncertainty has further weakened investor confidence in the euro.

Compounding the euro’s struggles is the European Central Bank’s (ECB) persistently dovish stance. One week back, the ECB lowered interest rates by 25 basis points and signaled openness to further cuts by year’s end. Traders are now pricing in at least three more rate reductions by the end of 2025. The latest inflation data shows that the Eurozone's inflation rate edged up to 2.5% in January, with core inflation steady at 2.7%. Despite these figures, the ECB remains committed to monetary easing, which continues to weigh on the euro’s valuation.

Despite its recent struggles, the euro has shown some resilience, rebounding to above $1.04 as the U.S. dollar weakened. Investors are beginning to assess the long-term economic implications of U.S. trade policies, particularly the risk of slower global growth.

In the Eurozone, business activity has rebounded after two months of contraction. However, the risk of deflationary pressures arising from U.S. trade actions remains a concern. The ECB’s monetary policy outlook has also influenced investor sentiment, with expectations that the deposit rate will fall to 1.87% by December. While the short-term outlook appears slightly more stable, broader risks to the euro persist.

The British pound (GBPUSD) has not been immune to recent market volatility, plunging to around $1.22, its lowest in nearly two weeks, amid U.S. dollar strength. The immediate trigger for this drop was tariff announcements, which have stoked fears of a global trade slowdown and inflationary pressures.

Adding to the uncertainty is the Bank of England’s (BoE) monetary policy stance. The BoE is expected to reduce interest rates by 25 basis points in its February 2025 meeting, though stronger-than-expected economic data suggests further cuts may not come as swiftly as previously thought. The UK government’s efforts to stimulate economic growth, including infrastructure expansion plans such as a third runway at Heathrow Airport, have provided some optimism. However, concerns over Britain’s rising debt levels remain a focal point for investors.

Despite its initial decline, the British pound has recently gained strength, rising above $1.25 as the U.S. dollar retreated. Analysts believe that the UK may avoid the worst of tariff policies due to its relatively balanced trade relationship with the U.S. Market focus has now shifted to the upcoming BoE policy decision, with expectations of a 25 basis point rate cut to 4.5%. However, with persistent inflation and slowing economic growth, further rate cuts could be necessary to maintain stability.

The latest BoE decision to cut interest rates to 4.5% saw the pound initially decline, though markets reacted positively overall. The UK’s 10-year government bond yields fell, while the FTSE 100 and FTSE 250 indices posted gains. The BoE’s revised economic forecasts highlight the challenge of balancing rate cuts with inflation concerns, as traders anticipate at least 60 basis points of further easing in 2025.

The current currency market landscape underscores the complex interplay between trade policies, central bank decisions, and economic indicators. The euro and the British pound have both faced substantial volatility, largely driven by U.S. trade strategies and dovish central bank policies in Europe.

While the euro’s recovery remains fragile, its trajectory will depend on how the ECB navigates monetary easing and how the trade war scenario unfolds. The British pound, on the other hand, may continue to experience fluctuations as markets digest the BoE’s rate decisions and the UK’s broader economic outlook.

For traders and investors, staying informed and agile in response to these developments is crucial. As global trade tensions persist and central banks adjust their policies, currency markets will remain highly reactive, presenting both risks and opportunities for market participants worldwide.

New York Session: The Canadian Dollar’s Tumultuous Ride Amid Tariffs, Economic Shifts, and Monetary Policy

The Canadian dollar (USDCAD) has been on a rollercoaster ride in recent months, fluctuating in response to trade policy shifts, economic data releases, and monetary policy decisions. As global trade tensions escalate and the Bank of Canada (BoC) adopts a more dovish stance, the Loonie remains under pressure despite intermittent recoveries. Understanding the key forces driving these fluctuations is crucial for businesses, investors, and policymakers alike.

One of the most significant developments affecting the Canadian dollar has been the imposition of tariffs by the United States. The US government, under President Donald Trump, announced a 25% tariff on Canadian imports, citing concerns over illegal immigration and drug trafficking. Although energy exports from Canada faced a reduced tariff of 10%, the overall impact on the commodity-linked Canadian dollar was significant.

In response, the Canadian dollar weakened past 1.47 per USD, marking its lowest level since April 2003. The situation was exacerbated by additional tariffs imposed on Mexico and China, leading to retaliatory measures that further weighed on the Loonie. However, a temporary reprieve was granted when President Claudia Sheinbaum of Mexico negotiated a delay in the tariffs until March. This development sparked hopes that Canadian Prime Minister Justin Trudeau might secure a similar delay in his meeting with Trump, momentarily stabilizing the currency around 1.46 per USD.

More recently, trade tensions have eased somewhat. Canada posted its first trade surplus in December after nine months of deficits, a sign of improving economic fundamentals. Additionally, Trudeau successfully secured a 30-day pause on the tariffs, which provided temporary relief for the Canadian dollar. As a result, the Loonie strengthened past 1.43 per USD, reaching a seven-week high. Nevertheless, uncertainty remains as negotiations continue and the risk of renewed trade barriers lingers.

Economic data releases have played a pivotal role in shaping the trajectory of the Canadian dollar. On the positive side, Canada’s unemployment rate fell to 6.6% in January from 6.7% in December, defying expectations of a rise to 6.8%. This improvement eased concerns about labor market weakness flagged by the BoC. Additionally, the Canadian composite PMI showed signs of stabilization, improving to 49.5 in January from 49.0, with manufacturing expanding for the fourth consecutive month.

However, other indicators have been less encouraging. The Ivey PMI plunged to 47.1 from 54.7, marking its lowest level since December 2020 and reinforcing expectations for further policy easing. Despite a modest GDP growth rate of 0.2% in December and an annual growth forecast of 1.4% for 2024, the overall economic outlook remains fragile. These mixed signals have kept the Canadian dollar’s rally in check, preventing a sustained recovery.

The BoC has taken a more accommodative stance in response to economic uncertainties. In a recent move, the central bank cut its key interest rate by 25 basis points to 3.0%, concluding its quantitative tightening program. Moreover, the BoC announced plans to resume asset purchases in March, initially through the repo program and Government of Canada bill auctions, with a long-term goal of restoring secondary market bond purchases by 2026.

This dovish shift has exerted downward pressure on the Canadian dollar, as lower interest rates reduce the currency’s attractiveness to investors seeking higher yields. While strong labor market data provided some support, the BoC’s stance suggests a cautious approach aimed at sustaining economic stability rather than prioritizing currency strength.

Adding to the Canadian dollar’s woes, the U.S. dollar has strengthened significantly. The U.S. jobs report revealed that job growth slowed in January, but the unemployment rate edged down to 4.0%, supporting the Federal Reserve’s decision to delay interest rate cuts. The U.S. dollar index (DXY) rose to 108.02, reflecting investor confidence in the resilience of the American economy.

Furthermore, renewed trade war concerns have bolstered the U.S. dollar. President Trump’s announcement of reciprocal tariffs on multiple countries has heightened fears of further disruptions to global trade. In response, the euro, British pound, and other major currencies weakened, reinforcing the greenback’s dominance. The Canadian dollar, alongside the Mexican peso, remained under pressure despite temporary relief from tariff negotiations.

The outlook for the Canadian dollar remains uncertain as it continues to navigate a complex landscape of trade negotiations, economic performance, and monetary policy decisions. While easing trade tensions and improving economic data have provided some relief, the BoC’s dovish stance and the broader strength of the U.S. dollar pose significant challenges.

Investors and market participants should closely monitor upcoming developments, particularly any shifts in trade policy, BoC announcements, and U.S. economic indicators. With volatility expected to persist, strategic positioning in currency markets will be key to mitigating risks and capitalizing on opportunities in the evolving financial landscape.

Crypto: Bitcoin, Trade Tensions, and Corporate Strategy

The cryptocurrency market is no stranger to volatility, but recent global trade tensions have added another layer of complexity to the already unpredictable digital asset space. Bitcoin and other cryptocurrencies have faced renewed selling pressure as escalating trade disputes between the United States and China fuel investor uncertainty. At the same time, corporate giants such as MicroStrategy—now rebranded as "Strategy"—continue to double down on their Bitcoin holdings, reinforcing the growing institutional presence in the crypto ecosystem.

Bitcoin fell, as the U.S. and China imposed fresh tariffs on each other. The market downturn was not limited to Bitcoin; other major cryptocurrencies like Ethereum and Solana also lost ground. The turbulence erased gains from Monday’s relief rally, which followed a temporary agreement to delay tariffs on Mexico and Canada.

China’s retaliation to the U.S.'s 10% levy on Chinese goods included new tariffs on American exports such as oil and liquefied natural gas, creating a ripple effect across global financial markets. The uncertainty surrounding these policies has particularly weighed on risky assets, including cryptocurrencies. U.S. investors pulled a net $235 million from a group of 12 Bitcoin-focused ETFs on Monday, reflecting declining confidence amid heightened economic friction.

Despite being hailed as a "safe haven" asset by some, Bitcoin’s correlation with macroeconomic events remains evident. The digital asset is still roughly 10% away from its all-time high, reinforcing its vulnerability to broader market conditions. While Bitcoin has historically thrived during times of economic uncertainty, the immediate reaction to trade tensions suggests that institutional investors are treating it as a risk asset, offloading holdings amid market-wide turbulence.

Against this backdrop of uncertainty, MicroStrategy Inc. has taken bold steps to deepen its commitment to Bitcoin. The company, co-founded by Michael Saylor, has rebranded itself as "Strategy," emphasizing its transformation into a Bitcoin-focused entity. Ending 2024 with a staggering 74.3% BTC yield, Strategy has raised its annual growth target for Bitcoin holdings from 6-8% to 15% over the next three years.

Currently owning more than $45 billion in Bitcoin—over 2% of all BTC that will ever exist—Strategy has positioned itself as the world's first and largest Bitcoin Treasury. The company’s decision to issue $42 billion in securities between 2025 and 2027 signals its ambition to continue expanding its crypto reserves.

The rebrand is more than just a name change. With its new brand color, orange, symbolizing energy, intelligence, and Bitcoin, Strategy aims to solidify its identity in the digital asset space. By pivoting away from traditional business intelligence and focusing entirely on Bitcoin, Strategy underscores the increasing institutional adoption of cryptocurrency and the growing recognition of Bitcoin as a long-term store of value.

While Bitcoin’s price fluctuations are influenced by macroeconomic factors such as trade policies and regulatory headwinds, the continued embrace of Bitcoin by institutions like Strategy signals confidence in the long-term viability of digital assets. However, challenges remain.

The ongoing uncertainty surrounding trade relations, coupled with potential regulatory shifts in the cryptocurrency space, could further test Bitcoin’s resilience. Additionally, as Bitcoin adoption grows, it will be crucial to monitor whether it evolves into a true hedge against global economic instability or continues to behave as a risk asset in the eyes of institutional investors.

In the coming months, traders and investors alike will be watching developments closely—both in the geopolitical landscape and in the corporate crypto sector. Whether Bitcoin emerges stronger from this period of turbulence will depend on how well it navigates the intersection of macroeconomic shifts and institutional participation.

The intersection of trade tensions and cryptocurrency market dynamics illustrates the growing interconnectedness of digital assets with traditional finance. While geopolitical uncertainty has weighed on Bitcoin and other cryptocurrencies, institutional backing from firms like Strategy underscores the asset’s long-term potential. As global trade policies evolve and corporate adoption expands, the crypto market will continue to adapt, presenting both risks and opportunities for investors. The only certainty in the world of Bitcoin is that volatility is here to stay.