Forexlive Americas FX news wrap 3 Feb: Tariffs are postponed in Canada and Mexico.

• Trump says call with Trudeau went “very well”. Asked on tariffs, he said “watch”
• Major US indices start the week with declines
• WSJ: Trump looking to dismantle the Department of Education
• Trudeau and Trump are on a call now, watch out for headlines
• Crude oil futures settle at $73.16
• Bitcoin recoups $100K as the risk mood continues to improve
• More from Bostic: Businesses are not confident in their outlook at this point
• CIBC forecast how Canada’s economy would fare during a five-month tariff war
• Navarro: Trudeau needs to recognize it is a drug war, not a trade war
• China’s UN envoy says will be filing a WTO complaint against US
• Trump: China tariffs were an opening salvo
• Fed’s Bostic: The current degree of uncertainty has broadened considerably
• Donald Trump considering hitting EU with 10% tariffs on imported goods – report
• Fed’s Collins: Big tariffs will push up price levels, could also have second-round impacts
• Trump confirms that Mexican tariffs will be paused, says negotiations will start
• White House confirms that Mexican tariffs will be delayed for a month – report
• Sheinbaum says had a good conversation with Trump. Tariffs paused for a month
• White House says negotiations on tariffs are ongoing
• US construction spending for December 0.5% versus 0.2% estimate
• US January ISM manufacturing 50.9 vs 49.8 prior
• US January final S&P Global manufacturing PMI 51.2 vs 50.1 prior
• Canada January S&P Global manufacturing PMI 51.6 vs 52.2 prior
• Trump says he just spoke with Trudeau and they will speak again at 3 pm ET
• Kickstart the FX trading day (and week) with a technical look at EURUSD, USDJPY and GBPUSD
• Hassett: There have been some positive conversations on tariffs
• ForexLive European FX news wrap: Dollar off the highs but risk stays on the defensive

The USD started the day higher vs most of the major currencies (with the exception of the JPY) as markets reacted to weekend tariff news with 25% on Mexico and Canada and 10% on China. However, early in the US session, the greenback started to move modestly lower, but it wasn’t until the commentary from Mexico officials that Mexican President Sheinbaum had good conversations with Trump, and that he agreed to a 30-day delay in the proposed 25% tariff. The Mexican Pres promised the deployment of 10,000 national guard troops to protect the border. Trump promised to slow weapons across the border to Mexico. We will see what happens in 30 days.

Similar conversations with Canada PM were not as positive in the morning, but as the day comes to a close, it is being reported that Canada was also give a reprieve for 30 days on tariffs. In return, Canada PM Trudeau promised to spend $1.3B on border security and appointed a Fentanyl czar. It was good enough for a similar 30 days reprieve.

Trump did say he would impose a 10% tariff on China goods – calling the move an “opening salvo” – and was considering “hitting the EU” with 10% tariff as well.

Despite the China tariffs and the EU threat, what was feared to be the start of a trade war, ends as a big “nothing burger” after all.

Fedspeak restarted with Fed’s Collins leading the way. She highlighted the impact of broad-based tariffs on prices, noting that the U.S. has limited experience with large-scale tariffs. These tariffs could push up production costs, create second-round effects, and influence demand-side dynamics.

While acknowledging that the U.S. economy has been in a strong position, with a labor market near full employment, Collins emphasized that more work is needed to lower inflation. The Fed would likely view one-time price level increases through a broader lens and maintain a patient and cautious approach, given the softened trend in inflation. Collins reiterated that there is no urgency to change or lower rates, although some normalization of rates could occur over time.

Finally, Collins pointed out the importance of the Fed weighing both sides of its dual mandate and taking a holistic view of the data to understand the reasons behind movements in long-term rates.

Atlanta Fed Pres. Bostic had his monthly podcast where he covered a number of different topics. Bostic discussed the increasing uncertainty in the economy, highlighting that tariffs are contributing to this uncertainty and making it challenging to incorporate them into economic models. He stressed the importance of consulting with business contacts and considering various potential outcomes due to the rapidly changing economic landscape. Bostic reaffirmed that the Fed’s primary focus remains on inflation, with the goal of reducing it to 2% to maintain the institution’s credibility. He also noted that the U.S. labor market can support a tighter labor market than previously thought, and the outlook for inflation and housing inflation is expected to continue falling, with a solid job market persisting.

Bostic acknowledged the rising uncertainty and emphasized the need for caution in policy decisions, especially regarding long-term interest rates, which may have risen due to this uncertainty. He suggested that nominal interest rates could range between 3% and 3.5%. On tariffs, he noted that businesses expect to pass the costs on to consumers and that tariffs are a form of tax, with their impact depending on specifics like details, application, and retaliation. Bostic also mentioned that while cryptocurrency has grown, it still represents a small part of the financial system, and its potential to replace traditional financial systems remains unclear.

Additionally, Bostic mentioned that businesses are currently not confident in their outlook and are taking a wait-and-see approach. While businesses expect to pass on the cost of tariffs, pricing power is reportedly declining. Bostic stated that he does not expect enough clarity by March to justify a change in interest rates and that further rate cuts would depend on seeing a slowdown in the housing market.

On the data front, it was fairly robust. The US construction spending rose by a greater than expected 0.5% and ISM manufacturing was also stronger at 51.2 vs 50.1 in the preliminary release.

US stocks closed lower but off the lowest levels:

• Dow Industrial Average fell -122 points of 00.28%
• S&P fell -45 points of r-0.76%
• Nasdaq was the worst performer with a decline of -236 points or -1.20%.
• The Rusell 2000 of small cap stocks also fell sharply with a fall of -1.26% on the day.

In the US debt market, yields ended modestly lower. Gold closed at a new record high at 2814.13 and Bitcoin recovered from a low at $91550 to a high back above $100K at $102,569.

This article was written by Greg Michalowski at www.forexlive.com.