US markets were closed on Monday, limiting some of the potential reaction to the measures announced by the new Trump Administration. But global markets had a chance to signal what effect the change in policies will have on the markets. And there have already been some large moves, that could be a sign of the future.
Generally speaking, traders are already well aware that Trump in the White House implies more volatile markets. He has a habit of issuing statements outside of market hours that can be quite impactful. Most of the policies he’s outlined to pursue immediately aren’t directly tied to the markets. But some of them are, and we already saw some of the potential impact.
Digital Gold vs the Real Thing
On Trump’s Inauguration day, bitcoin rocketed higher on expectations that Trump and his cadre of pro-crypto appointees will support the crypto markets. In fact, bitcoin hit a new all time high. Meanwhile, the price of gold fluctuated, and ultimately ended the day lower, as traders signalled their view of Trump’s policies through Treasury yields.
One of the biggest moves of the day happened even before Trump took the oath, and that was with the dollar. It was reported that Trump wouldn’t go through with large tariffs immediately, and this provided something of a relief rally. Lower yields weakened the dollar, while the Euro gained.
The Tariff Issue
Trump said that it wasn’t time for universal tariffs just yet. In fact, he didn’t impose any tariffs on his first day in office. However, he did suggest that 25% tariffs would be applied to Canada and Mexico starting February 1st, which caused both of those currencies to tank. He also said that tariffs against the EU would be coming if the trade deficit with the bloc wasn’t resolved through increased purchases of energy.
Those moves brought back the tariff trade, giving the dollar a bit of a rally at the end of the day. However, the lack of specifics, and particularly the conditions for avoiding the application of tariffs, seems to have reassured markets. Trump’s nominee to run the Treasury Department (responsible for the tariffs), Scott Bessent testified before Congress in the days prior, emphasizing that tariffs were a tool to achieve other objectives. Markets appear to be pricing in the possibility that tariffs won’t be applied in the near term.
What’s in Store
Trump’s flurry of executive orders appears to not be over, with dozens more planned in the coming days. He’s already issued instructions on pushing for increased production of natural gas and petroleum, leading to lower crude prices in the wake of the Trump’s Inauguration. Trump also didn’t make any comments about the Fed or monetary policy.
The political issues that might have the most direct impact on currencies now shifts to Congress. Technically, the US reaches its debt ceiling on Tuesday, meaning that it can’t borrow additional funds. The Treasury will continue to issue bonds as part of the regular rolling over of existing debt. It also doesn’t mean any immediate impact on the Government, as the Treasury has over $670 billion in cash on hand. But, it does signal that there is a pending fight over spending that could split a very tiny majority that Republicans hold in Congress.
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