Euro Rebounds from Two-Year Low as Tariff Fears Ease

The euro rebounded from a two-year low of $1.01 to $1.03 as market fears of an imminent trade war subsided following a delay in US tariffs on Canada and Mexico. Hong Kong stocks hit a two-month high, led by electric vehicle makers, while European stock futures edged up just 0.1%. Investors are watching upcoming earnings reports from major firms including Alphabet, BNP Paribas, UBS, and Ferrari, as well as potential developments from an expected call between Trump and Xi Jinping.

Equities

The FTSE 100 fell 1% on Monday, giving back some of its recent gains after posting its best monthly performance in over two years. The decline was driven by concerns over new US tariffs, although the market recovered from its lowest levels after President Donald Trump delayed tariffs on Mexico by a month.

The FTSE 250 also fell 1.1%. Among the hardest-hit sectors were automobiles and consumer-focused stocks, with the FTSE 250’s automobile sector down 2.4% and beverages falling 1.8%. Safe-haven assets remained in demand, leading to lower European bond yields.

Investors are watching for further developments in US trade policy, particularly Trump’s stance on tariffs for the European Union. Although the US President said Britain was “out of line” on trade, he suggested the UK may be able to avoid tariffs, unlike the EU, which he said would “definitely” face them.

Economic data from the UK showed factory output, new orders, and employment all declined in January. The Bank of England is due to meet on Thursday, with markets expecting a 25-basis-point interest rate cut. Investors have now priced in 81 basis points of cuts by the end of the year, up from 75 basis points last week.

Wall Street’s main indices closed lower on Monday, though they recovered some ground after Trump’s announcement of the Mexico tariff delay. The S&P 500 fell 0.75% to 5,995.01, while the Nasdaq Composite dropped 1.2% to 19,392.23. The Dow Jones declined 0.27% to 44,420.19. Defensive sectors, including healthcare and consumer staples, posted gains, while technology and consumer discretionary stocks saw the biggest losses. Nvidia and semiconductor stocks fell after last week’s announcement from Chinese startup DeepSeek, which unveiled a cheaper AI model that rattled the market.

Forex & Commodities

The US dollar weakened on Monday after President Donald Trump paused new tariffs on Mexico for a month, allowing further negotiations. The dollar index fell 0.5% to 108.96 after reaching a three-week high of 109.88 earlier in the session. The Mexican peso strengthened, rising 1.25% to 20.4196 per dollar after initially dropping to a nearly three-year low. The Canadian dollar also rebounded, reaching 1.4568 per US dollar after touching levels last seen in 2003. Meanwhile, the euro fell as much as 2.3% to $1.0125 before recovering slightly to $1.0286, as investors braced for potential US tariffs on the European Union. The Japanese yen remained firm, with the dollar slipping 0.24% to 154.845 yen.

Gold prices remained near record highs, holding at $2,820.94 per ounce after hitting $2,830.49 on Monday. Investors continue to see gold as a hedge against inflation and geopolitical uncertainty, particularly with ongoing concerns over US tariffs on China. Analysts suggest gold could target $2,874 in the near term, with some expecting a move toward the psychological $3,000 level.

Oil prices fell sharply after US tariffs on Chinese imports took effect, triggering retaliation from Beijing. China imposed a 10% tariff on US crude oil and 15% levies on coal and liquefied natural gas, set to begin on 10 February. West Texas Intermediate crude dropped 1.8% to $71.84 per barrel, while Brent crude declined 1.2% to $75.09.