Market Fears Ease As US Pauses Tariffs On Canada And Mexico
The US tariffs announced during the weekend have sparked concerns over a new trade war that could drive prices and inflation higher, putting implemented monetary policies in question.
However, President Trump backtracked on Monday as he announced that tariffs on Canada and Mexico would be postponed for 30 days as negotiations take place.
The US dollar strengthened against its competitors while Asian stock markets rallied on Tuesday morning as traders hoped for a positive outcome after the US-China negotiations over tariffs due later this week.
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ECB Policymakers Comment On Interest Rates
ECB policymaker Peter Kazimir said that the latest rate cut brought the central bank closer to its target but added that it wasn’t there yet. The Slovak banker mentioned that factors such as forecasts, services inflation, wage developments could play a role in decisions to be made “in April and beyond.” His comments suggested that Peter Kazimir is in line with market expectations for a new rate cut after the ECB’s March meeting.
Gediminas Simkus, the Lithuanian ECB governing board member, forecast a couple more interest rate cuts after March, mentioning that the central bank could allow a looser monetary policy. Simkus also said that “we still have space left before reaching neutral rate.” The Lithuanian banker suggested that Donald Trump’s tariffs could increase uncertainty in financial markets.
ECB policymaker Francois Villeroy de Galhau said that the imposed US tariffs will increase economic uncertainty, agreeing with his colleagues’ views. De Galhau said that the new tariffs constitute a very worrying development. The French ECB board member suggested that there will likely be further rate cuts by the ECB.
Eurozone Inflation Rises In January
A report published by Eurostat on Monday showed that headline inflation in the eurozone rose by 2.5% in January, on an annualised basis. The inflation figure was higher than anticipated by market analysts who had been expecting it to remain unchanged at 2.4% as had been recorded in December.
Core CPI inflation came in at 2.7% in January and has remained unchanged since September 2024. Services inflation fell to 3.9% in January from 4% in December. Despite inflation’s surge, economists suggested that the ECB would likely not be affected in regard to unwinding its monetary policy, although rate cuts might be smaller than initially expected.
Westpac Forecasts RBA Will Cut Rates By 100 Bps In 2025
In a note to investors, Westpac’s economists suggested that the Reserve Bank of Australia (RBA) could cut its interest rates by 100 basis points during this year. The report mentioned that an interest rate cut after the RBA board meeting on February 18th could be a topic of debate despite market confidence, adding that the most important part to watch would be the way that the easing cycle would unfold.
It should be noted that the RBA was one of the first central banks to raise interest rates three years ago in order to combat inflationary pressures. There were no interest rate cuts by the RBA in 2024 as the central bank held the cash rate steady at 4.35% throughout the year.
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