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Markets cautious on tariff risk
Financial markets remain wary as Trump reaffirms tariffs on Mexico and Canada, the UN adopts a Ukraine resolution, and central banks signal diverging paths on interest rates.
Trump confirms 25% tariffs on Mexico and Canada set for March 4, but markets remain skeptical due to his history of policy reversals.
UN passes Ukraine resolution without referencing Ukraine’s sovereignty, while G-7 nations push for diplomatic solutions.
Fed’s Goolsbee signals no rate cuts until policy uncertainty around tariffs, immigration, and government spending clears.
BoE’s Dhingra urges faster rate cuts, arguing that monetary policy remains overly restrictive despite slowing inflation.
Trump reaffirms tariff plans on Mexico and Canada, markets remain cautious
Former U.S. President Donald Trump has reiterated his commitment to imposing 25% tariffs on Mexico and Canada, confirming that the levies remain on schedule for March 4 after a one-month delay. While the announcement underscores Trump’s firm stance on trade policy, financial markets have reacted with restraint, wary of his history of abrupt reversals that inject uncertainty into economic projections.
UN Security Council Passes Ukraine Resolution Amid G-7 Push for Diplomacy
The United Nations Security Council has adopted a resolution regarding the war in Ukraine, introduced by the United States. Notably, the resolution omits direct references to Ukraine’s sovereignty or territorial integrity, reflecting the delicate diplomatic balancing act. Trump has asserted that all G-7 nations are aligned in their desire to end the conflict. Meanwhile, French President Emmanuel Macron has signaled a potential European role in future negotiations. Despite these developments, markets have shown muted reactions but could turn optimistic if substantive progress emerges.
Fed’s Goolsbee: Rate cuts unlikely until policy uncertainty eases
Chicago Federal Reserve President Austan Goolsbee has emphasized the need for prudence before considering rate cuts, citing the economic ambiguity surrounding Trump-era policies. Speaking in a televised interview, Goolsbee noted that the Fed remains in a “wait-and-see” mode as it assesses the implications of tariffs, immigration policies, fiscal adjustments, and changes to the federal workforce.
“If these policies drive inflation higher, the Fed is legally bound to respond,” he stated, cautioning that the overall policy framework remains unclear. “There’s a lot of uncertainty—kind of dust in the air—and before we can start cutting rates again, we need greater clarity.”
BoE’s Dhingra calls for more aggressive rate cuts
Bank of England Monetary Policy Committee (MPC) member Swati Dhingra, one of the panel’s most dovish voices, has renewed her call for accelerated rate cuts, arguing that policy remains excessively restrictive despite ongoing disinflation.
Dhingra, who voted for a 50-basis-point cut earlier this month, pushed back against assumptions that rate reductions would be limited to 25 basis points per quarter. “That’s not what the committee has explicitly stated, and it’s certainly not my view,” she asserted.
She pointed to weak consumer spending as a primary concern, stating that the economy has yet to regain sufficient demand momentum. “Consumption remains soft, and we’re not seeing renewed inflationary pressures,” she said. Despite some isolated inflationary risks, Dhingra maintained that the broader disinflation trend remains intact and that reducing monetary tightening would not necessarily derail it.
Her remarks underscore growing divisions within the MPC, with some members advocating patience while others, including Dhingra and Catherine Mann, push for swifter and more substantial rate cuts.
Australia’s inflation data could influence RBA’s stance
Australia is set to release January inflation data, with expectations pointing to a slight uptick in headline CPI from 2.5% to 2.6%. Markets will closely analyze the trimmed mean measure to determine whether the sharp drop to 2.7% in December signals a broader disinflationary trend.
A stronger-than-expected reading could reinforce the Reserve Bank of Australia’s cautious approach to rate cuts, following the initiation of its easing cycle last week. The labor market has shown resilience, with January’s employment report exceeding forecasts as full-time hiring drove a net gain of 44,000 jobs.
Despite headwinds from U.S. protectionist policies, the RBA could still move forward with three additional rate cuts this year. However, a hot inflation print could trigger a hawkish repricing in rate expectations, currently pricing in 50 basis points of cuts by year-end. While the Australian dollar may see temporary support, broader concerns over trade tensions and global growth risks keep AUD/USD on track for a decline below 0.620 in the months ahead.
