More tariff talk

The dollar gained ground on Friday following the January jobs report in the US and amid more Trump tariff talk, which continued over the weekend with his announcement that he would impose 25% tariffs on all steel and aluminium imports. The euro has slipped to around $1.0310 against the US currency while sterling has weakened to about $1.24, which leaves EURGBP a little lower trading just north of £0.83 at the start of play today.

US bond yields jumped on Friday on the back of the jobs report and also a survey showing rising inflation expectations amongst US consumers, with 2-and 10-year yields both ending the best part of 10bps higher, while equivalent German and UK yields ended largely flat. The tariff talk weighted on equity markets, with both US and European stocks shedding almost 1%  on the day.

The US economy added 143k jobs in January according to Friday’s report. This was a little lower than expected but there was an upward revision of 100k to the November-December data, while the unemployment rate came in lower than forecast at 4% and wage growth was a touch stronger than expected at 4.1% y-o-y. Separately, the latest survey from the University of Michigan showed a sharp jump in US consumers near-term (one-year ahead) inflation expectations to 4.3% last month (from 3.3% in December), the highest reading since November 2023, probably reflecting the expected impact of tariffs on consumer prices.

Donald Trump said yesterday that he would impose 25% tariffs on steel and aluminium imports to the US from today. He also reiterated Friday’s comments that he would announce reciprocal tariffs on a wide range of countries later this week (as Trump put it, “if they charge us, we’ll charge them.”)

Looking to the week ahead, the key economic data release will be the January CPI report in the US on Wednesday, while tomorrow Fed Chair Powell talks to the Senate Banking Committee regarding the outlook for the economy and monetary policy.