Nothing like the decisions this week's Fed and ECB they mark the news of the new world under the banner of divergence: for the first time after many years the two central banks they expressed different opinions and they took different rate decisions, but we will have to get used to others divergent trends: reinforcement of the dollar compared to other currencies, the trade balances which will split under the weight of the duties that Trump wants to impose, the economie on both sides of the Atlantic destined to be on two misaligned plates of the scale. The weekend will be decisive when Trump will drop his bomb along the commercial trajectories. If it really suits him: it would at least trigger a rise in inflation to which the Fed will have to respond with a rate hike. Exactly the opposite of what the tycoon wants. In the meantime, uncertainty and fear of inflation are so high that investors are returning to take refuge in gold which marks new highs.
ECB and Fed: Each Goes Their Own Way. But Trump “Demanded” Something Else
The first central bank meetings of the 2025 they imply that it will be a year where policy makers they will follow their own path, While economic paths will diverge: The US will keep interest rates steady, the eurozone will cut rates, and outlier Japan will be firmly in hike mode. This is a change from last year, when the global consensus was in favor of cautious rate cuts, with seven of the world's 10 major developed market central banks easing monetary policy.
From the words of Powell and Lagarde you can see the different tone. "We believe that the situation is really positive for politics and for the economy, and therefore we do not believe we should rush to make changes," he said Powell to journalists after the Fed decided to keep the rates unchanged. For European interest rates, Lagarde said instead after the ECB Governing Council decided to cut by another quarter of a point, "we know that the direction of travel" will be more downwards, "At what pace, in what sequence, to what extent, the data we collect will inform us". The next decision will be up to the bank of england, which is expected to lower rates next Thursday, with the possibility that it could proceed at a faster pace of cuts than currently expected.
Powell is in no rush to move forward: His answers to reporters' questions on Wednesday were peppered with phrases like "wait and see," "waiting to see," "waiting," "I'm in no rush," and "we'll watch patiently." But This was certainly not the result that Trump was aiming for he had said of “claim” last week by the head of the Fed, whom he appointed in his first term, with whom he had become embittered over differences on interest rate policy and whom he would like to replace when Powell’s current four-year term ends in May 2026. “I will demand that interest rates go down immediately. And they should go down all over the world,” Trump said in a video at the World Economic Forum in Davos.
La difference in tone between the Fed and other central banks is the result of the different path taken by theUS economy, when the world was emerging from the pandemic crisis in 2020. The high inflation It was a global phenomenon at the time, given the intricate supply chains, and central banks launched a uniform response with rapids rate hikes in an attempt to control it. But the The causes of the price increase are different: Russia's invasion of Ukraine in 2022 brought increased energy price inflation in the euro area, while in the United States more aggressive fiscal spending created demand-driven price increases. Inflation then fell overall, but in different contexts: in the United States, this occurred as the economy maintained above-trend economic growth, while Europe was on the brink of recession.
Duties: Confirmation on Canada and Mexico. And then there would be the BRICS, Europe and China. Or not?
But it is theimposition of duties on the part of Trump, or at least the promise of wanting to do so, the real sword of Damocles hanging over the markets, which are therefore in total uncertainty and are trying to take, as far as possible, some countermeasures. Duties which would further push the I'm raising the dollar, would crush the economie which would be imposed and in any case would grow inflation, which should ultimately be contained by rate hikes by central banks. Before he took office, he was said to be considering declaring anational economic emergency to allow for the application of new tariffs, but such a move has not (yet) been announced.
Trump on Friday night, has imposition of duties confirmed of 25% on imports from Canada and Mexico starting February 1, reiterating his hard line against America’s two main trading partners, accused of not putting an end to shipments of phenyl and the flow of migrants across the US border. “We really need to do this, because we have very large trade deficits with these countries,” Trump said during a meeting at the White House.
Trump also once again warned member countries of the BRICS by replace the dollar US dollar as a reserve currency, repeating the threat of 100% rates he advanced after his victory in the November presidential elections. “The idea that the BRICS countries are trying to move away from the dollar, while we stand by and watch, is over. We will ask these seemingly hostile countries to commit to don't create a new BRICS currency, nor to support another currency to replace the U.S. dollar, otherwise they will face 100% tariffs,” Trump said on Social Truth, a statement almost identical to the one published on November 30. The grouping, which initially included only Brazil, Russia, India, China and then South Africa in 2009, added Egypt, Ethiopia, Iran and the United Arab Emirates in 2023, while Indonesia also joined earlier this month. Now the whole group represents over 40% of the world's population and 37% of global GDP, as well as 44% of oil reserves, 53% of natural gas reserves, 72% of rare earth reserves. The group does not have a common currency, but the subject he often comes back to the table .
The details of the measures that Trump will want to take with trade remain to be defined. Chinese: From imposing tariffs of 60%, Trump, after a “friendly” phone call with Xi Jinping, lowered it to a hypothetical 10%, but the president has mostly glossed over the issue since then.
And then there is Europe which is expecting guidance on April 350. Trump has targeted her, calling her “very, very mean” toward the United States. “Other countries are big abusers, too, not just China,” Trump said. “We have a $XNUMX billion deficit with the European Union. They treat us very, very mean, so they will have to prepare for the duties".
Christine Lagarde noted that renewed trade tensions could exert a even greater pressure on growth already lagging the eurozone. “The risks to economic growth remain tilted to the downside,” he said of Trump’s threatened tariffs on a broad set of countries. “All we know for sure is that it will have a negative impact globally.”
Even the governor of the Bank of Canada, Tiff Macklem, deplored Trump's tariff threats, as he delivered his sixth consecutive rate cut and slashed growth forecasts. "A sustained, full-scale trade conflict would severely damage economic activity in Canada," he said.
The dollar is strong against almost everything. But is it really convenient for Trump?
Already the only one policy divergence monetary policy between the Fed and its peers puts upward pressure on the dollar, but so will Trump's tariffs. A greenback, which hit a 2-year high against the basket of currencies last month, if too strong could also be a problem for Trump: would keep the US imports cheaper at a time when Trump instead wants a “rebalancing” of global trade in favor of the United States. This is already a difficult task after the record US trade deficit recorded at the end of 2024.
The greenback has retreated from its peaks in recent days, but remains strong. The first currencies crushed by its weight are naturally the canadian dollar and the mexican peso, awaiting Trump's rates. The Canadian currency remained near a five-year low of 1,4490 Canadian dollars. The Mexican peso is trying to recover from its recent sharp decline, but is in the 20,6849 area per dollar.
The euro after all, it has more than one problem to solve in the future before it can start rising again: it will need clarity on European politics, the end of the war in Ukraine, clarity on the absence of US import tariffs and a more stable GDP trend, say analysts who do not see parity between the euro and the dollar far away (it is currently oscillating around 1,02/04), close to the low of over two years of 1,0177 reached on Monday.
The hypothesis of duties on Made in China has also caused the yuan against the dollar, despite the Chinese central bank rushing to the rescue of its currency, setting the central parity at 7,1703, strengthening it by 183 basis points, to the strongest level since November 8, 2024. The value is 1.200 basis points higher than market expectations: analysts indicate that the devaluation of the yuan the primary way to mitigate the effect of possible US tariffs on Chinese exports.
But almost all currencies are under pressure against the dollar (except the yen, supported by the BoJ policy): from GBP which lost almost 1% in the month, at Australian dollar which accumulated a weekly decline of 1,7%, at New Zealand dollar which lost about 1,3% during the week, the Swiss franc
You know what? I take refuge in gold
The fear that the effect duties let loose on inflation, but also the climate of uncertainty and the fear of volatility has triggered the Gold rush, the safe haven par excellence, and the stocks kept in the vaults of the Bank of England, in London, have rapidly decreased following the many shipments to the United States. The news was given by the Financial Times, according to which the wait to withdraw bullion from British central bank vaults has increased from a few days to four to eight weeks. Traders, worried that US tariffs could also affect the gold market, have accumulated stockpiles in New York estimated at $4 billion (8 billion euros), in the face of a decrease in liquidity in the London market. Gold hit a new all-time high on Thursday. The precious metal rose 82% to $78 an ounce, surpassing the previous all-time high set in October.
Trump’s dilemma: How to better Biden’s legacy?
This situation left Trump with a potential dilemma: How to improve the Biden administration's economic performance in an economy that is supposedly operating at full employment with output and growth rates near or above its potential. U.S. output grew 2,8% in 2024, the fourth consecutive year in which gross domestic product grew well above the 1,8% rate considered the economy's long-term potential. Inflation is nearly under control,
