Market Talk Roundup: Latest on U.S. Politics

The dollar reclaims some ground as U.S. markets reopen following Martin Luther King Jr. Day, while President Trump is yet to impose tariffs. The currency fell ahead of Trump's inauguration on news that he would wait before imposing trade restrictions. ICE's DXY index remains below Friday close, but up from recent lows as the greenback strengthens around 0.3% versus the euro and the pound. Spartan's Peter Cardillo expects the dollar to remain relatively strong. Tariffs, he says, are more likely to cause recession in economies other than the U.S. In case of a trade war, "the U.S. could survive better than other countries" that rely more on trade, he says. (paulo.trevisani@wsj.com; @ptrevisani)

The US dollar rose against its major trading partners early Tuesday after declining during most of the Monday Martin Luther King Jr. holiday as foreign exchange markets braced for talk of tariffs during President Donald Trump's many appearances throughout the day that took a backseat to other issues.

The Philadelphia Federal Reserve is due to release its nonmanufacturing reading for January at 8:30 am ET Tuesday to start a relatively light data week. On Tuesday, the US Treasury will begin taking extraordinary steps to avoid breaching the debt limit, a process set in motion by former US Treasury Secretary Janet Yellen on Jan. 17. Yellen did not say how long these steps will prevent the debt limit from being breached.

Trump's nominee for Treasury secretary, Scott Bessent, has not yet been confirmed.

Highlights Wednesday include weekly mortgage applications and Redbook same-same store sales and leading indicators data for December.

Thursday's key data are weekly jobless claims, natural gas stocks and crude oil stocks inventory and the Kansas City Fed's manufacturing reading for January.

The week ends with the busiest economic release schedule Friday. The S&P Global flash estimates for manufacturing and services conditions for January, the final University of Michigan consumer sentiment reading for January, existing home sales data for December and the Kansas City Fed's services reading for January are all due Friday.

The Federal Open Market Committee is in its 'quiet period' ahead of the Jan. 28-29 meeting.

A quick summary of foreign exchange activity heading into Tuesday:

fell to 1.0352 from 1.0417 at the Monday close but was above a level of 1.0326 at the same time Monday morning. Eurozone economic sentiment improved in January according to data released earlier Tuesday. The next European Central Bank meeting is scheduled for Jan. 30.

fell to 1.2237 from 1.2329 at the Monday close but remained above a level of 1.2205 at the same time Monday morning. UK employment rose as expected in November while average earnings growth accelerated, and the unemployment rate ticked up. The next Bank of England meeting is scheduled for Feb. 6.

rose to 155.8517 from 155.6171 at the Monday close but was below a level of 156.3869 at the same time Monday morning. There were no Japanese data released overnight. The next Bank of Japan meeting is scheduled for Jan. 23-24.

rose to 1.4443 from 1.4308 at the Monday close but was below a level of 1.4465 at the same time Monday morning. Canadian consumer price data for December are due to be released at 8:30 am ET. The next Bank of Canada meeting is scheduled for Jan. 29.

remains cheap and oversold despite Monday's rebound, said ING.

The bank estimates that the pair is still trading around 1.5% below its short-term fair value, signaling that some United States tariff-related risk remains in the price.

The euro could fare well if time passes without the European Union being explicitly mentioned in U.S. President Donald Trump's tariff comments, stated ING. That support may, however, prove rather short-lived as things can — as markets learned Monday with Canada and Mexico — change abruptly on protectionism, and the euro remains generally unappealing from a number of macro fundamentals.

This means any rebound may well fall short of 1.050 in , wrote the bank in a note.

was "unfazed" early Tuesday by the release of United Kingdom's labor figures. Wage growth excluding bonuses was slightly higher than expected. However, the month-on-month increase in private sector pay, which the Bank of England closely monitors, was more subdued.

This figure has been fluctuating and follows a stronger reading previously, pointed out ING. Unemployment figures have been rather unreliable, but there are still broad indications that the jobs market is cooling enough to reduce wage growth over the year ahead.

The BoE's recent CFO survey shows expected wage growth dropping below 4% in recent months. This doesn't significantly alter the BoE's outlook, with a February rate cut still ING's base case.

is looking at some upside risks in the short term as markets can still price in more BoE easing and continue to embed idiosyncratic sterling (GBP) risks related to higher borrowing rates. At the same time, the euro could see some tentative relief on Trump not targeting the E.U. with tariffs for now.

moved down the trading range to 4.250-270 and it looks like markets will test the lower bound in the coming days thanks to the hawkish central bank of Poland support, added ING.

also briefly touched 410, this year's lows, allowing Hungary's forint (HUF) assets to show some rally as well.

In the medium term, the bank expects to head towards 420, but in the short term, ING believes the pair can stabilize around 412.

also briefly headed lower but saw the biggest pullback within Central and Eastern Europe Monday, and ING believes it will stay closer to 25.300 until the Czech central bank shows more dovish headlines ahead of its February meeting, which could be as early as the end of this week.

The euro traded near $1.03, close to its late 2022 lows, as dollar strength persisted after Donald Trump was sworn in as US President.

While Trump refrained from imposing tariffs immediately following his inauguration, he later announced plans to introduce tariffs of up to 25% on Mexico and Canada starting February 1st. This renewed concerns about trade tensions and potential inflationary pressures.

Meanwhile in Europe, ECB policymakers have been advocating for caution regarding further rate reductions.

Eurozone inflation rose for the third consecutive month to 2.4% in December, though this increase was largely expected due to favourable base effects from the previous year.

The ECB, which has already cut rates four times since June, is likely to maintain its easing trajectory over the next six months.

Markets currently anticipate a 25bpst reduction in the key deposit rate at the ECB's upcoming meeting next week.

Yields on U.K. government bonds, or gilts, are little changed after U.K. data showed stronger wage growth but unemployment inching higher. Sterling only briefly rises before turning lower as markets focus on Trump's announcements. U.K. average wage growth, excluding bonuses, in the three months to November was 5.6%, stronger than expected. The data are inconclusive, while the market is "far more focused on Trump's first few days right now," Ballinger Group's Kyle Chapman says in a note. The 10-year gilt yield and the 30-year gilt yield rise by less than 1 basis point to 4.660% and 5.211%, respectively, Tradeweb data show. Sterling is 0.6% lower on the day at $1.2255, versus $1.2263 before the data. (miriam.mukuru@wsj.com)

The dollar rebounded after posting its steepest drop in 14 months as US President Donald Trump said he may enact 25% tariffs on Mexico and Canada in February.

Bloomberg’s dollar gauge rose as much as 0.7% in Asia Tuesday after slumping in New York trade as headlines on fresh tariffs spurred a rush to the reserve currency. The Canadian dollar and Mexican peso fell around 1% against the greenback on the news.

“If 25% tariffs on Mexico and Canada are coming, then surely bigger tariffs on China will be following shortly after,” said Rodrigo Catril, strategist at National Australia Bank Ltd. in Sydney.

“The dollar has room to trade higher.”

The dollar’s surge underscores just how jittery traders are on any news around duties and their impact across the global economy. Compounding volatility were headlines Monday on how the Trump administration would hold off on implementing tariffs immediately after his inauguration, spurring whipsaws across the $7.5 trillion-a-day foreign-exchange market.

Treasury 10-year yields were down eight basis points on the day at 4.55%, after dropping as much as nine basis points earlier. The risk-sensitive Australian and New Zealand dollars also declined.

“Volatility on the back of Trump’s off-the-cuff comments will be a regular feature,” said Alvin Tan, strategist at RBC Capital Markets. “Trump likes to pontificate, but he doesn’t always follow through on his comments. But the market cannot ignore them either.”

China’s offshore yuan fell 0.3% after gaining more than 1% in New York trading as Trump had previously threatened imposing tariffs on the nation’s exports. The People’s Bank of China set the yuan reference rate at the strongest level since Nov. 8, in a sign it’s ramping up support for the currency.“Be flexible - that’s the only thing I can think of right now,” Serena Zhou, economist with Mizuho Securities Asia Ltd., said on trading currencies. “It’s too hard trying to predict the uncertainty”, she said.