A Look at the Day Ahead in European and Global Markets

By Tom Westbrook

A rate hike in Japan added momentum to a tide of dollar selling during the Asia session. The first week of Donald Trump’s presidency has been less aggressive regarding trade policy than many market participants anticipated.

The dollar is down about 1.7% against the euro this week and slightly further against sterling. The dollar index has decreased by 1.5%.

Tariffs are perceived as beneficial for the dollar because the U.S. is a significant importer. The theory suggests that if exporting countries cannot find alternative customers, they may weaken their currencies to offset trade levies and maintain market share.

While tariffs are anticipated, early indications from Trump’s second term suggest that they will be subject to negotiation. In a Fox News interview, Trump stated he would prefer not to impose tariffs against China and described a recent phone call with Chinese President Xi Jinping as friendly.

At the World Economic Forum in Davos, Trump emphasized a desire for a “fair” U.S.-China trade relationship, saying, “We don’t have to make it phenomenal.”

Hong Kong’s Hang Seng index was up 1.8% during the morning session. China’s yuan reached a six-week high against the dollar.

The China-sensitive Australian dollar hit a five-week peak, and MSCI’s index of Asian emerging market currencies was on track for its largest one-week percentage gain in 18 months.

The Bank of Japan increased short-term interest rates to 0.5%, the highest in 17 years. Although this move was expected, traders pushed the yen 0.6% higher to 155.12 per dollar.

Attention now turns to a news conference by BOJ Governor Kazuo Ueda at 0630 GMT. British and European PMI figures are expected later in the session, with services predicted to outperform manufacturing.

Futures indicate a largely steady open for Wall Street, with the S&P 500 – which reached a record closing high on Thursday – on course for a weekly gain.

Key Developments Influencing Markets on Friday:

• British and European PMIs

(By Tom Westbrook; Editing by Edmund Klamann)