Trump's First Day Sparks Reactions

The US dollar (DX) plummeted on Monday, 20 January,  after Donald Trump confirmed during his inauguration speech reports that he would not sign any executive orders regarding tariffs on day one. Euro (EURUSD) and Yen (USDJPY), already boosted by a hawkish narrative at the ECB and BOJ, rose further against the greenback, with weakness eventually spilling over to gold (XAU). 

As investors cheered the delay in signing off on new tariff policies, the new President announced he was mulling the imposition of a 25% levy on imports from Canada and Mexico starting in February. His comments reversed sentiment, stoking fears of inflation and strengthening the US dollar. However, Trump has already signed executive orders for an “emergency price relief,” leaving markets in a guessing game.

Trump Declares Energy Emergency 

Trump signed a flurry of executive orders on day one of his presidency on Monday, concerning border security, diversity and inclusion, armed forces and government operations, the economy, and the environment, among other areas. 

Out of the 200-plus executive orders signed, including one mandating withdrawal from the Paris Climate Treaty, Trump signed an order declaring a “national energy emergency” to address the cost of living and bring down high energy prices and, in turn, inflation.  The declaration, in line with his pro-fossil fuel “drill baby drill” campaign catchphrase, rolled back restrictions on oil (CL) and gas drilling in Alaska and reversed a pause on gas exports in a bid to “unleash” US energy production. 

Brent (EB) and WTI (WTI) remained under pressure on Tuesday, though Trump has also pledged to refill the US strategic reserves in a move seen as boosting oil demand. Oil was, in fact, under pressure on Monday, trading 1.3% lower following the ceasefire deal between Israel and Hamas. Moreover, the  President revamped calls for EU energy purchases, urging the region to either accept more tariffs or buy more US energy. 

Tariff Targets Canada, Mexico and TikTok

Despite pledging to impose stiff tariffs of 10% to 20% on Europe and going as high as 60% on goods from China, Trump said the White House is not yet ready to go ahead with such tariffs yet. However, he called for an investigation of the economic practices of China before taking action, taking a cautious stance due to the “Phase 1” deal signed with China in 2020. The memo signalled that any imposition of tariffs on China would depend primarily on the trade deficit between the countries, as in recent calls against the EU.

While analysts still argue whether Europe is “decoupling” from China to avoid US tariffs, the rhetoric surrounding Canada and Mexico imports is a little more clear following Trump’s comments on Monday.  In addition to the ongoing investigation of trade deficits with other countries, Trump stressed concerns surrounding undocumented migrants and drugs flowing into the US.

Canada and Mexico account for around 30% of US exports, with increased tariffs not only triggering retaliatory action but also raising prices for American consumers. Although the President threatened to withdraw from the USMCA agreement landed in his previous presidency, he also called for an investigation similar to those regarding China and other countries. This has some sceptics considering the threats to be bargaining chips, especially considering the critical role of the two economies in US energy and auto imports.

Canada has already allocated $1 billion to measures to improve border control, while Mexico carried out fentanyl seizure and sought to reduce Chinese imports. Still, following the belated announcement, the Canadian dollar (USDCAD) and Mexican peso (USDMXN) declined over 1.4% as Chinese markets and, in particular, Hong Kong stocks (HSI) surged higher.  (Source: Financial Post)

On China, Trump said that he was holding back on tariff threats as he tries to push China to agree on a ByteDance deal to sell TikTok following a Supreme Court order that it violates US law. Trump, in fact, extended the deadline for TikTok’s sale for 75 days on Monday after a hopeful call with Chinese President Xi Ping last Friday.

Conclusion

As the dust settles from the inauguration, market participants watch Trump's next moves with bated breath. From delayed tariffs to sweeping executive orders, his first day back has already sent shockwaves through global markets. 

With energy policies rolling back restrictions and tariff threats looming, the next few weeks are set for a volatile yet transformative period. Investors and traders alike wonder whether Trump’s bold moves will ignite a new wave of inflation or if the uncertainty will prove too much for the markets to bear.