US President-elect Trump’s inauguration on January 20 should underpin the USD Index (DXY) this week. Trump had pledged to impose tariffs on his first day of office, particularly on goods entering the US from Canada, Mexico, and China. We expect the Fed to keep rates unchanged at 4.25-4.50% at the FOMC meeting on January 28-29. The Fed will likely become more cautious on rate cuts from Trump’s tariffs lifting US inflation expectations. Treasury Secretary Yellen warned that the reinstated statutory debt limit would be reached on January 21, with her agency taking extraordinary measures through March 14.
USD/CAD will likely push above 1.45 on Trump’s pledge to impose 25% tariffs on Canadian goods and a 25bps rate cut to 3% expected at the Bank of Canada’s meeting on January 29. USD/CAD rose by 0.6% rise to 1.4477 last Friday, nearer the peaks in 2020 (1.4510) and 2016 (1.4580).
EUR/USD is eyeing parity after failing to push above its 1.03 resistance level last week. The European Central Bank will likely maintain a dovish tone after delivering a 25 bps cut to 2.75% on January 30. The ECB views Trump’s tariffs as a greater threat to growth than inflation. Although the CDU/CSU is leading the polls ahead of the German elections on February 23, it lacks compatible partners to form a stable coalition government.
USD/JPY should rise after failing to break below 156-158, its month-long range, last week. Despite expectations for the Bank of Japan to hike by 25 bps to 0.50% on January 24, the JPY could not overcome the negative yield differential against the USD. The futures market expects the Fed to delay its next rate cut to 2Q25.
China kept the USD/CNY fixing in a stable 7.1875-7.1891 range since the start of 2025. Trump had pledged to lift tariffs on China imports to 60%, starting with an additional 10% tariff at the start of his second term to bring China to the negotiating table. US Treasury Secretary nominee Scott Bessent said during his confirmation hearing that if confirmed, he intends to pursue the purchase guarantees in the Phase One trade deal that Trump’s trade team put together in January 2020. In a phone call last Friday, Trump and President Xi Jinping discussed several issues, including trade. Vice President Han Zheng will represent China at Trump’s inauguration on January 20, marking an unprecedented high-level presence from Beijing.
The Monetary Authority of Singapore’s policy review on January 24 will likely be a non-event. We expect the authority to keep the three parameters (mid-point, slope, and width) of the SGD NEER policy band unchanged. The SGD NEER’s decline from the top to the mid-point of its policy band in recent months does not signal an imminent policy shift. Instead, we view this repositioning as consistent with the recent moderation in the MAS core inflation into the 1.5-2.5% forecast range for 2025 and the official view for the Singapore economy to slow to 1-3% this year from 4% in 2024. Maintaining the SGD NEER’s appreciation will help address the cost-of-living issue, a priority in the upcoming Budget statement on February 18. With the NEER back at the mid-point, we do not expect USD/SGD to repeat its sharp rise seen in the past 3.5 months unless the USD appreciates strongly globally.
Quote of the Day
“How can a president not be an actor?”
Ronald Reagan
January 20 in history
In 1981, Iran released 52 American hostages twenty minutes after Ronald Reagan’s inauguration as the 40th President of the United States of America.
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