FX Daily: Executive decisions incoming | articles

The big day has finally arrived. Financial markets are anxious to see what orders US President-elect Donald Trump will pass on his first day. There is a lot of focus on immigration controls and declaring a national energy emergency to allow more US oil and gas production. Currency markets are most interested in what he has to say about tariffs and what kind of pain the Oval Office plans to inflict on major trading partners. At last week’s nomination hearings, incoming finance minister Scott Bessent said tariffs would be needed to deal with unfair trade practices, support government revenue and to be used as a negotiating tool.

Regarding what is currently priced for tariffs in the financial markets, we find the online prediction sites quite useful, such as Polymarket and Kalshi. Polymarket runs a book on which countries will receive US tariffs in Trump’s first week. China is priced at 56%, Mexico at 54%, Canada at 45% and the EU at just 7%. It is also the case – using Scott Bessent’s comments on tariffs as a negotiating tool – that the new administration is going hard on tariffs at first. That’s why today, after a nearly 10% rally since late September, the dollar is less than one percent off its recent peak.

Of course, there will be a risk of a correction in the dollar if it appears that Trump will be more selective on tariffs after all – but that will probably come at a later stage.

Price action could well be muted today as US markets are closed for the Martin Luther King holiday. And the US data calendar is quiet this week, especially with the Federal Reserve in its blackout period ahead of the next FOMC meeting on January 29. But overall, we have no confidence in calling the dollar lower on market positioning and instead see the possibility of DXY having another test of 110 this week. Thursday could also be an important day for the markets this week, when Trump will have a digital dialogue with leaders at the World Economic Forum in Davos.

Chris Turner