Good morning,
The Czech National Bank is flirting with the idea of adding Bitcoin to its reserves. Governor Aleš Michl’s suggestion that Bitcoin is “worth considering” comes as central banks worldwide explore alternative assets. Of course, this doesn’t mean Prague will be stacking sats anytime soon. For now, it’s just a study, but if the CNB follows through, it would mark another step toward mainstream acceptance of digital assets. Whether this is diversification or just another round of central bank window shopping remains to be seen.
Last Week
Donald Trump’s return to the White House has sent markets into a familiar state of uncertainty. His opening days have been marked by tariff threats, executive orders, and renewed pressure on the Federal Reserve. Trump has already hinted at 25% tariffs on Canadian and Mexican imports, sending both currencies lower, while Chinese markets reacted to the prospect of new trade restrictions. Meanwhile, Trump is once again clashing with Fed Chair Jay Powell, demanding aggressive rate cuts ahead of next week’s policy meeting. The dollar’s direction remains uncertain, but with Trump pushing for looser monetary policy and tighter trade restrictions, markets are bracing for volatility.
Donald Trump’s renewed tariff threats against Mexico and Canada sent the peso tumbling 1% on Thursday, while the Canadian dollar touched a five-year low. Markets remain jittery as the former president ties trade policy to border security, using tariffs as leverage to curb migration and drug trafficking. While some investors see his rhetoric as posturing, the uncertainty is fuelling volatility. Analysts suggest markets have yet to fully price in the risk, leaving room for further downside if tariffs materialise. Meanwhile, comments from U.S. Commerce Secretary nominee Howard Lutnick hint at potential exemptions—if Canada and Mexico move swiftly on fentanyl controls. With Trump expected to keep the pressure on, further swings in CAD and MXN can be expected in the days ahead.
The euro remains under pressure as markets weigh the European Central Bank’s next move amid shifting global dynamics. While the ECB has signalled a cautious approach to rate cuts, softer economic data could force its hand sooner than expected. Meanwhile, the pound has staged a relief rally against the dollar, benefiting from Trump’s delay in imposing tariffs. However, analysts warn this is a short-term reprieve rather than a sustained trend. The UK’s economic outlook remains fragile, with rising borrowing costs forcing Chancellor Rachel Reeves to find £15bn in fiscal adjustments. Goldman Sachs forecasts that the Bank of England could cut rates six times by mid-2026. With UK fiscal policy under scrutiny and ECB decisions looming, euro and sterling traders face a volatile road ahead.
This Week
The US dollar staged a recovery last week as markets reassessed Trump’s stance on tariffs, confirming that the recent pullback was merely a corrective phase. Tariff policy remains the key driver, with Trump rejecting reports that Treasury Secretary Scott Bessent is pushing for a phased tariff increase, insisting they will be “much bigger.” With 25% tariffs on Canadian and Mexican imports set for February 1, investor concerns have resurfaced. Meanwhile, the Fed kept rates unchanged on Wednesday, with Chair Powell acknowledging progress on inflation but stressing that “non-market” prices remain stubbornly high. The central bank remains in wait-and-see mode, with markets now pricing in 45bps of rate cuts this year, down from 50bps. The next 25bps reduction is still expected by June, but uncertainty remains high.
Attention now turns to this week’s NFP report, with markets looking for signs of labour market resilience. Fed Chair Powell maintained that further weakening isn’t necessary for inflation to hit target, but he avoided addressing the risk of unexpected strength. December’s data showed 256k new jobs and wage growth holding near 4% y/y—another strong reading could reignite inflation fears, particularly with Trump’s tariffs set to take effect. If markets begin to doubt the need for two rate cuts this year, the US dollar’s recent recovery could extend further. Ahead of Friday’s NFP release, investors will scrutinise Monday’s ISM manufacturing PMI, Wednesday’s non-manufacturing PMI, and the ADP employment report for clues on economic momentum and potential shifts in Fed policy expectations.
Key Events
Monday Feb 3rd
15:00 US Manufacturing PMI
Tuesday Feb 4th
15:00 US JOLTS job openings
21:45 New Zealand Unemployment Rate
Wednesday Feb 5th
13:15 US Non-Farm Employment Change
15:00 US Services PMIs
Thursday Feb 6th
12:00 BOE Monetary Policy Report
13:30 US Unemployment Claims
Friday Feb 7th
13:30 Canadian Unemployment Rate & US Average Hourly Earnings & unemployment Rate
Have a great week,
The Garton Team.