It's Moving
The expectation is that the Trump administration will continue to announce new protectionist measures, likely more towards friendly countries than China. This will be a factor supporting volatility.
The macro point
The real news at the beginning of the year for the foreign exchange market is the return of volatility, both for major and minor pairs. Monthly volatility on the Indian rupee is 4%, for instance. The GBP/USD pair is having sessions with fluctuations exceeding 1%. This is the new normal that companies must adapt to with the return of President Donald Trump. The new U.S. tariff policy is generating a lot of commentary. But it has a direct effect on the weak economy so far. Thus, only 5% of the U.S. GDP is directly affected by protectionist measures against Mexico, Canada, and China. It is not painless. But it is also not very significant. The same goes for aluminum. The announced measures are mainly symbolic and aim to satisfy Trump’s Midwest electorate. Indeed, aluminum is only the 43rd most important U.S. import. For now, we still believe that the U.S. strategy mainly aims to obtain trade concessions from other countries. This is not contradicted by the facts at the moment. What certainly had more impact last week was the publication of U.S. inflation in January. Everyone expected a bad figure. It was very bad. Inflation increased by 0.5% on a monthly basis. This brings consumer prices to 3%. That is huge. Several components are rising sharply, particularly energy and rents. There are also seasonal effects that have amplified inflationary pressures. In any case, a new rate cut by the U.S. Federal Reserve (Fed) seems out of reach in these conditions. We would not be surprised if the terminal rate is close to 4%, which would imply at most two new rate cuts. That is already a lot. Conversely, in the eurozone, the macroeconomic situation is still poor. We see nothing that would prevent the European Central Bank from continuing to cut rates, with a terminal rate that could be between 1.85% and 2%.
Technical point
On the foreign exchange market, volatility is gradually returning. Take the GBP/USD pair (British pound/US dollar). Since the beginning of the year, it has experienced daily fluctuations of more than 1% on more than half of the trading sessions compared to less than 20% of sessions in 2024. That's significant. We observe that volatility is on the rise on almost all pairs. This is new data, which is set to persist, and with which companies will have to learn to juggle. At the level of emerging currencies, volatility is obviously present. It's less surprising. For weeks, the Indian rupee has been hitting lows against the US dollar. Sooner or later, the Indian central bank had to intervene. This was the case during last Wednesday's session. The intervention allowed the Indian rupee to reach a high for two months, at 86.47 per dollar. But volatility is expected to remain high. Monthly volatility on the Indian currency is around 4%, a high point since April 2023. This reflects tensions that exist on emerging markets due to the return of Trump. These tensions can quickly spread to other market sectors. It is also expected that other emerging central banks will have no choice but to intervene in the FX market in the coming weeks. A word on EUR/USD. The underlying trend is still bearish, despite the attempted rebound in January which was mainly linked to incoming flows on the European stock market and hopes of a peace agreement between Ukraine and Russia. The monetary policy differential between the two sides of the Atlantic, with an American central bank that will maintain its interest rates at a high level, is a decisive factor supporting the dollar against the single currency in the coming months. The supports and resistances shown below indicate respectively the lows and highs within which the prices should evolve during the week. | Weekly Supports | | Weekly Resistances | |
|---|
| S2 | S1 | R1 | R2 |
| EUR/USD | 1.0270 | 1.0334 | 1.0511 | 1.0565 |
| EUR/GBP | 0.8255 | 0.8299 | 0.8423 | 0.8484 |
| EUR/CHF | 0.9291 | 0.9333 | 0.9469 | 0.9499 |
| EUR/CAD | 1.4734 | 1.4799 | 1.4933 | 1.5009 |
| EUR/JPY | 157.90 | 158.10 | 161.11 | 162.35 |
Announcements to follow
In terms of announcements, there are few statistics this week. The Philly Fed index on the manufacturing sector is interesting for economists. But it has no effect on currency movements. However, the minutes of the last Fed meeting, which are expected this Wednesday, should confirm that, for the moment, monetary status quo will persist on the American side. This is, a priori, good news for the dollar.
Below are the publications and events that should have a major impact on the evolution of currency prices.| Day | Time | Country | Indicator | What to expect? |
|---|
| 18/02/2025 | 08:45 | FRA | Consumer prices (January) | Previous at 0.2% month on month. |
| 20/02/2025 | 14:30 | USA | Philadelphia Fed Manufacturing Index (February) | Previous at 44.3. |
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