Good morning,
While Storm Eowyn left thousands of passengers stranded with cancelled flights, those coming from the US were riding the winds of fortune—literally. A supercharged jet stream shaved up to 45 minutes off transatlantic journeys, with a near-record speed of 814mph clocked on a British Airways flight from Las Vegas to Heathrow. Though it fell just short of the 835mph record, the conditions have airlines eyeing potential new benchmarks. As Britain braces for the chaos of 100mph winds, at least there’s one silver lining: faster arrivals for those flying west to east.
Last Week
Donald Trump’s return has sent shockwaves through global markets, with the dollar slipping over 1% this week amid tariff threats and rate cut demands. Mexico and Canada have been Trump’s primary targets, with proposed levies of up to 25% on exports sparking a rare show of unity between the neighbours. Both nations are bracing for economic fallout—Canada predicts a 2.6% GDP contraction if tariffs proceed. Meanwhile, Trump has drawn battle lines with the Federal Reserve, urging aggressive rate cuts to fuel what he calls a “golden age” for the U.S. economy. Investors remain jittery, navigating mixed signals on trade, monetary policy, and Trump’s unconventional tactics.
Sterling posted a relief rally this week, climbing to a two-week high against the US Dollar. The surge followed US President Trump’s call for immediate Fed interest rate cuts, which weighed heavily on the Dollar. Despite upbeat UK PMI data, which showed surprising resilience in December, the underlying fiscal picture remains troubling for Sterling. Rising public borrowing and mounting concerns over the UK’s fiscal discipline keep the currency at risk of sell-offs. While market participants await the Fed’s rate decision, expected to hold steady, Sterling’s gains highlight its vulnerability to external shocks and domestic fiscal uncertainty. Investors remain cautious as the Chancellor’s room to manoeuvre within fiscal targets narrows, leaving the pound susceptible to further volatility.
Last week started strong for the euro, with EUR/USD climbing more than 1% on Monday. But by Tuesday, it had lost momentum,as investors shifted towards the dollar. Adding to the mix, Donald Trump made waves at Davos with some sharp comments about EU-US trade, saying, “they don’t take our cars but send us millions.” It’s seen as a warning shot but could also hint at future negotiations. Despite the dollar’s strength, the euro held its ground better against other currencies, like the Canadian and Mexican pesos. This week, the focus will likely stay on whether EUR/USD can break through a key resistance level, with global markets driving the mood.
This Week
The Federal Reserve is expected to hold rates steady at its January meeting, resisting the rate-cutting trend seen in Canada and the Eurozone. While US inflation has shown signs of easing, price pressures remain too stubborn to justify a policy shift just yet, particularly as President Trump’s low-tax, high-tariff agenda looms. Fed Chair Jerome Powell has reiterated that policy decisions will remain data-driven, with no preset course, leaving the door open to future hikes if inflation accelerates under Trump’s fiscal policies. Markets will be watching for any hints of dovishness in Wednesday’s statement, especially regarding potential cuts later in the year. However, the Fed’s stance may be overshadowed by trade news, as Trump’s remarks on easing tensions with China continue to weigh on the dollar.
The European Central Bank is expected to maintain its gradual rate-cutting approach as it heads into its January meeting, with market consensus pointing to a 25-basis-point reduction. President Christine Lagarde reinforced this stance during her remarks at Davos, tempering speculation of a larger 50-bps cut. With services inflation in the Eurozone still around 4% and wage growth at a three-decade high, the case for accelerating cuts remains weak despite headwinds like China’s sluggish economy and rising political uncertainty in France and Germany. Investors will be watching closely for any hints of divisions within the Governing Council and insights on the neutral rate. Meanwhile, tariffs and Eurozone GDP estimates for Q4 could add volatility, particularly if trade tensions escalate.
Key Events
Monday 27th January
01:30 Chinese Manufacturing PMI’s
21:25 Swiss National Bank Chairman Speaks
Tuesday 28th January
15:00 US Consumer Confidence
Wednesday 29th January
00:30 Australian CPI
14:15 BOE Gov Bailey Speaks
14:45 Canadian Rate Statement
15:30 BOC Press Conference
19:00 US Federal Funds Rate
19:30 FOMC press conference
Thursday 30th January
13:15 Euro Monetary Policy Statement
13:30 US GDP & Unemployment Claims
13:45 ECB Press Conference
Friday 31st January
13:30 Canadian GDP & US CPI
Have a great week,
The Garton Team.