The upcoming Trump administration has once again brought the topic of tariffs to the forefront, with a promise to impose “big taxes on imports from other countries.”
This has reignited the long-standing debate about whether such measures will lead to inflation. Some analysts believe tariffs will push prices higher, while others argue that consumer spending adjustments could offset inflationary pressures. The central question remains whether these trade policies will create a prolonged price surge across the economy.
Economists in favour of the inflationary argument point to past disruptions, such as those seen during COVID-19. Supply chain bottlenecks led to sharp increases in flexible-price goods like vehicles and appliances, eventually affecting services such as rent and transport. A similar pattern could emerge with tariffs, where initial price hikes spread gradually, contributing to persistent inflation. If businesses pass on higher costs to consumers, inflation may persist, necessitating intervention from the Federal Reserve through higher interest rates, potentially slowing economic growth.
On the other hand, proponents like Treasury Secretary nominee Scott Bessent argue that tariffs simply redistribute spending rather than drive overall inflation. As consumers allocate more money to tariff-affected goods, they may cut back on other expenditures, stabilising overall demand. This perspective assumes inflation will remain contained unless wage growth accelerates, which could sustain price increases over time.
Adding complexity to the outlook, Trump’s proposed tax cuts could increase disposable income and sustain consumer spending. If tariffs raise import prices while tax cuts boost spending power, demand could remain strong across multiple sectors, weakening the expected balancing effect. In such a scenario, inflation risks could escalate, leading to a more hawkish monetary policy response from the Federal Reserve.
Sectors heavily reliant on imports, such as retail and technology, may face pressure as they adjust their supply chains to mitigate rising costs. The interplay between tariffs, tax cuts, and monetary policy will define the economic landscape, influencing key asset prices and market sentiment in the months ahead.
With these progressing economic narratives in mind, we shift our focus to how the markets are reacting.
The US Dollar Index (USDX) ended the week around 109.40, maintaining a consolidation pattern–while also reflecting investor anticipation of new economic policies. If support holds near 109.00 or 108.10, bullish momentum could extend toward the 110.40 resistance level, where traders may look for potential bearish signals. A failure to hold above 109.00 could lead to downward pressure, testing key support zones.
The EUR/USD pair continued its downward trajectory, currently trading near 1.0215 after breaking previous support. Traders are closely monitoring the 1.0350 level for any potential rebounds, while further declines could drive the pair to 1.0035, where bullish buying interest may emerge.
Similarly, GBP/USD faced selling pressure throughout the week, hovering near 1.2200. The pair may encounter resistance around 1.2300, with a potential breakout targeting 1.2350. Should weakness persist, the next downside level stands at 1.2068, with 1.2036 acting as key support.
The Ninja (USD/JPY) maintained a tight range just below the 156.80 resistance. A successful break above this level could drive prices higher towards 159.44, while downside pressure may bring the pair back to the 153.80 support area, where traders will watch for buying opportunities.
USD/CHF continued its upward climb, testing resistance at 0.9224. A breakout above this level could lead to further upside toward 0.9244, while failure to sustain gains might push the pair back to 0.9050, where demand could support prices.
On the flipside, AUD/USD attempted a recovery from the 0.6160 zone but struggled to maintain bullish momentum while NZD/USD showed limited upside potential, trading near 0.5560. The next upside target remains at 0.5650. The Loonie (USD/CAD) held firm this week–above the 1.4310 level, with bullish targets set at 1.4559 if momentum continues.
Gold remains a critical safe-haven asset, given the inflation risks and market uncertainty from this week’s developments. XAUUSD traded within a narrow range around 2,695, with upside resistance seen at 2,726. A breakout above this level could lead to further gains toward 2,750, while downside support lies at 2,680 in case of selling pressure.
The S&P 500 reached new highs, crossing the 5,985 mark, driven by optimism surrounding anticipated pro-growth policies from the incoming administration.
On Tuesday, the Canadian Trimmed CPI is projected at 2.5% year-over-year, slightly lower than the previous 2.7%. Should the data meet expectations, the USD/CAD pair may see upward pressure as the Bank of Canada faces limited room for further rate hikes.
Wednesday brings the New Zealand CPI, forecasted to remain steady at 2.6% year-over-year. If inflation figures meet or fall below expectations, the NZD/USD pair could weaken further, with key support levels at 0.5511. Any upside surprise may provide a temporary boost to the pair.
On Friday, the focus will shift to a series of global PMI releases, including key reports from Japan, Germany, the Eurozone, and the US. The Bank of Japan’s policy rate decision is forecasted at 0.50%, up from 0.25% previously, which could lead to further volatility in USD/JPY. If the yen strengthens on a hawkish BOJ stance, the pair may retreat towards support at 153.80.
Meanwhile, Germany’s Flash Manufacturing PMI is expected to improve slightly to 42.9, while the Eurozone and US services sectors could show marginal declines, potentially impacting EUR/USD price action around the 1.0215 support zone.
With no major data releases on Monday and Thursday, market attention will focus on the Bank of Japan’s policy rate decision and the potential impact of President Trump’s tariff plans, both of which will drive volatility and set the market tone for the week.
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