ForexLive European FX news wrap: Dollar squeezed on hopes for softer tariffs

Headlines:

• Trump aides reportedly exploring tariff plans to only cover critical imports
• The loonie is in focus on potential Trudeau resignation
• Weekly update on interest rate expectations
• Eurozone January Sentix investor confidence -17.7 vs -18.0 expected
• Eurozone December final services PMI 51.6 vs 51.4 prelim
• UK December final services PMI 51.1 vs 51.4 prelim
• SNB total sight deposits w.e. 3 January CHF 439.6 bn vs CHF 445.7 bn prior
• China’s main stock exchanges reportedly asked large mutual funds to restrict stock selling
• Nippon Steel files lawsuit over Biden’s decision to block US Steel acquisition

Markets:

• AUD leads, USD lags on the day
• European equities higher; S&P 500 futures up 0.7%
• US 10-year yields down 0.5 bps to 4.589%
• Gold up 0.2% to $2,642.93
• WTI crude up 0.5% to $74.36
• Bitcoin up 1.3% to $99,503

It’s not a good day for dollar bulls as they are getting squeezed to start the new week. The greenback was already slightly softer early on in Europe before a report saying that Trump’s aides might be considering a softer stance on tariffs helped to stir up a risk rally in markets.

The dollar stumbled as such with EUR/USD rising from 1.0340 to 1.0400 while USD/JPY fell from 157.80 to 156.85 currently. It’s a broad based move with GBP/USD also seen up 1% to 1.2540 and USD/CAD down 0.9% to 1.4315 on the day.

In response to the headlines, equities are also rallying with S&P 500 futures climbing by 0.7%. European indices are also posting strong gains with the DAX up over 1% and CAC 40 up over 2%. In the bond market, yields fell off from earlier highs with 10-year Treasury yields falling from 4.63% to 4.59% now.

It’s a case of squeeze the dollar, buy everything else in this instance.

And in the commodities space, gold turned losses into gains as it also catches a bounce off its 100-day moving average to be up 0.3% to around $2,643 now. Silver is keeping its strong start to the year, as it is up over 2% to $30.23 currently.

The question now is, will we hear any denials from Trump on this supposedly softer take on tariffs? He’s been threatening a big game, so it will be hard to imagine him suddenly turning soft when he takes office later this month.

This article was written by Justin Low at www.forexlive.com.