Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
FX markets brace for “day one”
The US dollar was stronger on Friday ahead of President Donald Trump’s inauguration on Monday this week (US time).
Financial markets will be waiting to see whether Trump delivers on his promise to introduce a raft of executive orders. News organization AP reported on a private conversation with Republican senators that suggested more than 100 executive orders would be introduced on day one of the new administration.
Keenly for FX, the focus will be on any initial action on trade, with warnings of new tariffs on Mexico, Canada and China seeing their respective currencies drop sharply in November. Trump wrote: “On January 20th, as one of my many first Executive Orders, I will sign all necessary documents to charge Mexico and Canada a 25% Tariff on ALL products coming into the United States, and its ridiculous Open Borders.”
On Friday, trade-exposed currencies weakened, most notably with the Canadian dollar and Mexican peso falling. The USD/CAD hit the highest level since March 2020. USD/MXN climbed to the highest level since July 2022.
Across Asia, we saw a similar story, with AUD/USD down 0.3%, NZD/USD down 0.4% and USD/SGD up 0.2%. The USD/CNH bucked the trend, however, and fell 0.1%.
BoJ and PMIs in focus this week
Away from politics, FX markets this week will be dominated by two key central bank meetings, with China’s Loan Prime Rate on Monday and the Bank of Japan’s highly anticipated policy decision on Friday.
The Bank of Japan’s meeting will be particularly significant with market speculation building around potential changes to monetary policy. Governor Ueda’s press conference on Friday will be closely watched for signals about the bank’s future policy direction.
On the data front, a heavy slate of preliminary January PMI readings from major economies will provide important insight into economic momentum at the start of 2025.
Manufacturing and services PMIs are due from Japan, France, Germany, the broader Eurozone, and the UK on Friday.
In other key data, markets will monitor UK labor market figures on Tuesday, and US existing home sales on Saturday.
NZ’s inflation release, due Wednesday, will also be key.
Looking at recent currency moves, closely tracking economic data and central bank decisions will be crucial for FX direction this week.
The calendar notably features a mix of monetary policy events and high-impact economic indicators that could drive market volatility.
GDP miss could pressure Korean won
This Thursday, the GDP of South Korea will be made public. We anticipate that GDP growth will increase to 0.2% on a quarterly basis in Q4 from 0.1% in Q3, driven by strong exports that counterbalanced lower domestic demand.
GDP growth probably increased to about 1 percentage point in Q4 from -0.8 percentage points in Q3, which probably countered the decline in domestic demand growth.
After the political shock and the Jeju plane tragedy affected attitude, consumers probably reduced their expenditure on services like dining out and travel, which is why consumption probably declined again in Q4.
In general, we anticipate that GDP growth will once more fall short of the BOK’s projection, which would support a rate cut in February.
Despite the recent advance, we still see further upside risk for the USD/KRW in 2025 due to the elevated beta of KRW relative to the USD and RMB.
US dominates ahead of Trump inauguration
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 20 – 25 January
All times AEDT
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
