Key Highlights:
USD: Driven by tariff developments; NFP could reshape Fed expectations.
BoE: Expected to cut rates by 25bps; forward guidance in focus.
CAD: Jobs data crucial for BoC’s next move.
Trade War: Canada retaliates with counter-tariffs on US goods.
Global Uncertainty: Rising geopolitical tensions and shifting economic policies reshape market risks.

US Dollar in the Hands of Tariff Talks
The US dollar rebounded this week as concerns over Trump’s softer tariff stance faded. Wednesday’s Fed decision added fuel to the USD recovery after Powell emphasized a cautious approach to future adjustments, citing persistent inflationary pressures. However, with 25% tariffs on Canadian and Mexican imports effective February 1, market sentiment remains fragile.
Fed fund futures now price in 45bps of rate cuts for 2025, down from 50bps, with the next 25bps reduction nearly fully expected by June.
‘Complete Betrayal’: Canada Strikes Back Against US Tariffs
In response to Trump’s 25% tariffs on Canadian imports and 10% on energy, Prime Minister Justin Trudeau announced counter-tariffs on C$155 billion ($107 billion) of US goods, including steel, aluminum, cars, and consumer products. Trudeau condemned the move, stating that the US should partner with Canada rather than punish it.
Canada’s measures will roll out in phases, starting with C$30 billion worth of goods on February 1, with additional tariffs to follow later in the month. Business leaders warned of severe economic disruptions, while provincial leaders vowed retaliatory policies targeting US-made products and suppliers.
With tensions rising, market volatility is likely to increase, impacting the USD/CAD exchange rate and investor confidence.
Geopolitical and Economic Uncertainty Weigh on Markets
The magnitude and timing of US tariffs remain unclear, adding to investor concerns. Meanwhile, China unveiled DeepSeek, an advanced AI model that rivals leading Western counterparts, calling into question the effectiveness of US technology restrictions.
Beyond trade conflicts, geopolitical tensions have intensified:
Russia’s invasion of Ukraine, Middle East conflicts, and China’s regional actions continue to shape the global security landscape.
US shifts to “wolf diplomacy” with President Trump signaling intentions to reclaim the Panama Canal, acquire Greenland, and suggest that Canada avoid tariffs by joining the US.
The “Open Door” policy is fading as the US moves toward a sphere-of-influence approach, prioritizing economic dominance over multilateral cooperation.
The shift toward near-shoring and friend-shoring of supply chains may accelerate, prompting businesses to strengthen risk mitigation strategies. Investors are navigating an increasingly fragmented global economy, where policy decisions have immediate and profound market impacts.
Nonfarm Payrolls Take Center Stage
The upcoming January NFP report (Friday, Feb 7) will be critical. December’s job growth stood at 256k, while wage growth remained close to 4.0% y/y. If employment remains strong, markets may reconsider the likelihood of two rate cuts this year.
Key data to watch before NFP:
ISM Manufacturing PMI (Monday)
ADP Employment Report (Wednesday)
ISM Services PMI (Wednesday)
A strong jobs report could bolster USD further, especially if tariff risks escalate.
BoE: A Hawkish Rate Cut?
The Bank of England (Thursday, Feb 1) is widely expected to cut rates by 25bps, with market odds at 90%. However, the pound’s weak performance this year and UK inflation concerns (core CPI at 3.2% y/y) might push the BoE to signal a cautious approach on further cuts.
Despite weak UK growth, the BoE may avoid pre-committing to further easing, which could support GBP.
BoC’s Dilemma: Cut or Pause?
Canada releases January employment data (Friday, Feb 2) alongside the US NFP. With the BoC having cut rates by 25bps this week, policymakers are in a tough spot. While tariffs pose downside growth risks, they could also keep inflation sticky. A strong jobs report could reduce expectations of further rate cuts, while weak data may solidify another cut in March.
Other Key Events:
Eurozone CPI (Monday): If inflation cools further, the ECB may accelerate easing.
NZ Q4 Employment (Tuesday): Crucial for RBNZ’s rate path.
Japan Wages (Wednesday): Key for BoJ’s next policy move.
Market Outlook
This week’s focus will be on whether labor data across the US, UK, and Canada shifts monetary policy expectations. With tariff risks, geopolitical shifts, and economic data releases dominating headlines, volatility is likely to remain elevated.
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