North American Summary and Highlights 3 February
Overview - The USD corrected its post-tariff bounce assisted in particular by a delay of tariffs on Mexico to March 1. Equites moved off their lows, as did USD/JPY.
North American session
The main news of the North American session was that Trump delayed tariffs on Mexico until March 1 in return for a Mexican commitment to send 10,000 Mexican troops to the borders to control inflows of drugs and illegal immigrants. Data did not deliver much response. While there was no suggestion tariffs on Canada would be delayed, USD/CAD fell a big figure to around 1.4570. EUR/USD jumped above 1.03 from 1.0260 before settling near the figure. With equities moving off the lows, USD/JPY bounced from a low of near 154 to briefly touch 155, before slipping back to 154.75. Trump was speaking to Canadian PM Trudeau in the afternoon.
A stronger than expected ISM manufacturing index of 50.9 from 49.2 had little impact. Fed’s Collins and Bostic expressed uncertainty over the impact of tariffs and stated they were in no hurry to ease policy further.
European morning session
The USD was generally weaker through the European morning. The JPY gained the most ground, with USD/JPY dropping 50 pips to 154.90, but USD/CAD also fell back 35 pips to 1.4675, and AUD/USD edged slightly higher to 0.6145. EUR/USD was not much changed at 1.0245 but GBP/USD gained 20 pips to 1.2310.
Equity futures recovered slightly from the lows hit in Asia, but are still some way short of filling the opening gap. All the market action was a reaction to the tariff announcements from the US and Canada and Mexico over the weekend, which strengthened the USD and weakened all the risky currencies. There was little interest in the Eurozone January CPI data, which came in slightly above expectations at 2.7% y/y core, 2.5% y/y headline, or the manufacturing PMI data which showed small upward revisions in both the Eurozone and the UK.