The dollar index trimmed gains on Monday after Mexico and the U.S. agreed to delay tariffs, easing fears of a North American trade war. Mexico pledged to deploy 10,000 National Guard members to its northern border, though Trump clarified that future tariff negotiations remain possible. Trade tensions persist, with Trump set to speak with Chinese officials within 24 hours.

Fed Cautious as U.S. Manufacturing Rebounds

January’s manufacturing PMI returned to growth, with higher prices paid and expanding employment, signaling economic resilience. Fed officials remained cautious, with Boston Fed President Susan Collins warning that tariffs could drive inflation higher and Atlanta Fed President Raphael Bostic noting policy uncertainty complicates economic forecasting.

Euro and Pound Struggle Amid Trade and Rate Cut Expectations

The euro fell 0.81% to 1.0285, touching a low of 1.0125 as fears of U.S. tariffs on the EU mounted. GBP/USD erased earlier losses after the U.S.-Mexico tariff delay, but remains capped by Bank of England rate cut expectations.

Yen and Commodities React to Trade Uncertainty

USD/JPY found support at 154 but struggled above 155 as lower Treasury yields and tech weakness limited gains. Gold rose 0.65% on safe-haven demand, while copper gained 1.09% on optimism around industrial demand. Oil remained flat after OPEC+ reaffirmed its plan to raise output in April.

Market Summary: Trade and Central Bank Policies in Focus

• EUR/USD: Down 0.81%, pressured by tariff concerns.
• USD/JPY: Fell 0.18%, supported by risk-off sentiment.
• GBP/USD: Up 0.06%, stabilizing after tariff relief.
• AUD/USD: Dropped 0.55%, reflecting weaker commodity sentiment.
• Cross-Currency Pairs: EUR/JPY and GBP/JPY fell 1.00% and 0.16%, while AUD/JPY declined 0.73%.

Outlook: Markets Brace for Trade Talks and Central Bank Decisions

Upcoming trade negotiations, Fed policy updates, and BoE rate decisions will drive volatility, with markets watching for further developments in global economic policies.