Important calendar events
The dollar strengthened on Thursday, and the dollar index surged from 106.7 to 107.3. US treasury yields remained steady, with the 10-year bond yielding approximately 4.28%.
The US Federal Reserve held interest rates steady at its January meeting after delivering three consecutive rate cuts in 2024. FOMC policymakers voted unanimously to maintain the federal funds range to a target range of 4.25% to 4.50%.
The Fed’s latest monetary policy statement did not include an earlier mention that US inflation is moving towards the central bank’s 2% target. Instead, the report stated that price pressures remain elevated, which points to a prolonged pause in rate cuts.
Fed Chair Jerome Powell delivered a mildly hawkish message after the policy meeting, stating that the Fed’s approach will remain data-driven and stressed that the central bank needs to consider potential policy changes under Trump’s administration.
US Treasury Secretary Scott Bessent stated on Tuesday that trading tariffs are an important source of revenue and are an essential part of the US government’s economic policy. Bessent also stated that he aims to lower US treasury bond yields, while at the same time, ease monetary policy. US treasury yields dipped after Bessent’s speech, putting pressure on the dollar, while Fed rate cut expectations rose.
Markets' odds of rate cuts within the year are currently above 50 basis points, up from less than 40bps last week. Concerns that inflation may rise again if trade wars break out, have pushed the timeline of policy normalization back to 2026.
US President Donald Trump has been using threats of imposing trade tariffs as a negotiation tool to further his agenda with other countries. Trump has threatened that he will announce reciprocal tariffs on many countries, which would raise US import taxes to match those imposed by the country’s other trading partners.
Trump’s tariff plans change rapidly, causing confusion and volatility in markets. Trump stated earlier this week that he intends to impose tariffs on Canada and Mexico. Trump’s plans of imposing 25% tariffs on Canada and Mexico had been postponed for a month after both countries agreed to tighten border activities. On Tuesday, however, Trump stated that he intends to go ahead with imposing tariffs on his neighboring countries on March 4. Trump backpedaled again on Thursday, pushing back the timeline of imposing tariffs to Canada and Mexico on April 2. If Trump goes through with these heavy tariffs, global inflation is likely to rise, and the economic outlook will worsen, thus promoting a risk aversion sentiment that boosts safe-haven assets. Concerns that US inflation will rise again are raising the likelihood that interest rates will remain at restrictive levels for longer, lowering expectations of future rate cuts.
On the data front, Preliminary GDP data released on Thursday for the fourth quarter of 2024 were in line with expectations, confirming that the US economy is growing at a slow pace. Preliminary GDP showed that the US economy expanded by 2.3%, following 3.1% expansion in the third quarter of 2024 and falling below market estimates of 2.7% growth. In addition, the US economy expanded by 3.0% in the second quarter of 2024 and by 1.4% in the first quarter.
US Durable Goods Orders exceeded expectations in January, boosting the dollar. Durable Goods Orders rose by 3.1% in January, following a 1.8% contraction in December and against expectations for a 2.0% raise. CB Consumer Confidence released on Tuesday showed that Consumer confidence in the US dropped to 98.3 in February from 104.1 in January, falling short of expectations of a 102.7 reading.
Headline inflation in the US rose by 3.0% year-on-year in January after rising by 2.9% in December against expectations of a 2.9% print. Monthly inflation rose sharply by 0.5% in January after rising 0.4% in December, against a 0.3% rise anticipated. Core CPI, which excludes food and energy, rose by 0.4% in January, exceeding expectations of 0.3% and following a 0.2% rise in December. Core CPI rose 3.3% year-on-year in January, against a 3.2% gain in December.
Core PCE Price Index data are due on Friday and are this week’s most highly-anticipated fundamentals. This is the Federal Reserve’s preferred inflation gauge and Friday’s data are expected to show that inflationary pressures in the US continue to rise.
In addition, markets will continue to focus on Trump’s economic policies and trade tariffs, and Trump’s statements are likely to cause volatility in the price of the dollar.
EUR/USD dipped from 1.048 to 1.039 on Thursday as the dollar gained strength. If the EUR/USD pair declines, it may find support at 1.037, while resistance may be encountered near 1.053.
The Euro gained strength earlier this week, after Germany's conservatives, led by Friedrich Merz, won the German federal elections. Merz, however, will need to form a coalition preferably with Olaf Scholz's Social Democrats who came in third in the elections, after the far-right Alternative for Germany party. Talks so that the leading party can form a coalition will likely take weeks, putting pressure on the Euro.
The ECB lowered its benchmark interest rate by 25 basis points in January, bringing its main refinancing rate down to 2.90% from 3.15%. The central bank is currently expected to cut interest rates up to four more times in 2025, to a total of 125bps, until neutral policy settings are reached. Expectations that the ECB will return to a more normalized policy setting sooner than the Fed are putting pressure on the EUR/USD rate.
In her speech after the policy meeting, ECB President Christine Lagarde stressed that EU policymakers will not commit to a predefined rate cut path and that the central bank’s policy will remain data driven.
ECB member Isabel Schnabel stated on Tuesday that weak economic growth in the Eurozone is not necessary due to the EU’s restrictive monetary policy, indicating that the central bank may hold interest rates steady for some time. At the same time, tariff threats on European imports to the US are putting pressure on the Euro. US President Donald Trump stated on Wednesday that he intends to impose 25% tariffs on European cars and other goods.
EU CPI Flash Estimate data showed that Eurozone inflation remains above the ECB’s 2% target and may prevent the ECB from cutting interest rates further. Eurozone inflation rose to 2.5% year-on-year in January from 2.4% in December. Core CPI, which excludes food and energy, remained steady at 2.7% in January.
Preliminary Flash GDP data showed that the Eurozone economy remained stagnant in the final quarter of 2024 after expanding by 0.3% in the second quarter, raising concerns of stagflation in the EU. The economic outlook of the EU remains fragile as prolonged tightening has brought the Euro area economy to the brink of recession.
GBP/USD dropped from 1.268 to 1.260 on Thursday as the dollar surged. If the GBP/USD rate goes up, it may encounter resistance at 1.271, while support may be found near 1.256.
On Thursday, markets were focused on US President Donald Trump’s meeting with his British counterpart, Keir Starmer at the Whitehouse. Trump and Starmer met late on Thursday to discuss several key issues, including a possible collaboration to broker a peace treaty between Russia and Ukraine.
BOE policymakers cut interest rates by 25 basis points in February and the Official Bank Rate was reduced from 4.75% to 4.5%. Seven out of nine MPC members voted in favor of a 25 basis point rate cut, while surprisingly, the other two members were more dovish, voting for a 50 basis point rate cut.
Bank of England Governor Andrew Bailey has hinted at further rate cuts, but has stressed, at the same time, that the BOE will need to decide on its policy on a meeting-by-meeting basis and has refused to commit to a timeline or magnitude of future rate cuts. Markets are currently pricing in over 50 bps of easing by the end of 2025. The BOE currently anticipates that the British economy will grow by 0.75% by the end of 2025 and inflation will rise from 2.5% to 3.7%.
The British economy expanded by 0.4% in December, following expansion by 0.1% in November and exceeding expectations of a 0.1% print. Preliminary GDP data for the fourth quarter of 2024 showed that the British economy expanded by 0.1% against estimates of 0.1% contraction and following economic stagnation in the third quarter of 2024.
Price pressures in the UK are rising, reducing the odds of a BOE rate cut in February and putting pressure on the Sterling. Headline inflation in the UK rose by 3.0% annually in January, up from 2.5% in December, against expectations of a 2.8% print. Core inflation, which excludes food and energy, rose by 3.7% year-on-year in January from 3.2% in December, which was in line with expectations.
USD/JPY rose from 149.0 to 149.8 on Thursday as the dollar gained strength. If the USD/JPY pair declines, it may find support at 148.6. If the pair climbs, it may find resistance at 151.8.
The BOJ raised its interest rate by 25 basis points in January, from 0.25% to 0.50%, its highest level since 2008. In addition, the BOJ adjusted its inflation projections upward, to reflect the depreciation of the yen and rising oil prices, hinting at more rate hikes down the road. Policymakers expect Japan’s inflation to rise to 2.4% in 2025, up from previous estimates of 1.9%, and above the central bank’s 2% target.
BOJ Governor Kazuo Ueda hinted that the central bank will continue to raise interest rates if Japan’s economy continues to improve and the BOJ 2% inflation target is reached. Ueda emphasized, however, that the timeline of future rate hikes will depend on economic and inflationary conditions. Markets currently anticipate that the BOJ will raise interest rates to a peak interest of 1.00% over the next two years. On Thursday, Ueda stated that the BOJ will refrain from changing its monetary policy until it has time to assess the effect of potential US policies. The US may impose tariffs on Japan, which can have a significant impact on Japan’s economy.
Inflation in Japan is on the rise, raising the odds of future rate hikes and providing support for the Yen. The headline Tokyo CPI inflation rose to 3.4% annually in January from 3.0% in December. National Core inflation in Japan rose by 3.2% year-on-year in January from 3.0% in December against expectations of a 3.1% print. In addition, BOJ Core CPI rose to 2.2% year-on-year in January from 1.9% in December.
Preliminary GDP data for the final quarter of 2024 showed that the Japanese economy expanded by 0.7% against expectation of 0.3% growth. Final GDP data for the third quarter of 2024 showed that Japan’s economy expanded by 0.3%, down from 0.7% in the second quarter.
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Written by:
Myrsini Giannouli
चलनिधि प्रदाता के रूप में उद्योग उपस्थिति
और विश्वसनीय निष्पादन
ग्राहक धन
ग्राहक सहायता
अब आप जो वेबसाइट देख रहे हैं, वह टॉपएफएक्स ग्लोबल लिमिटेड द्वारा संचालित है, एक इकाई जो सेशेल्स के वित्तीय सेवा प्राधिकरण (एफएसए) द्वारा प्रतिभूति डीलर लाइसेंस संख्या एसडी037 के साथ विनियमित है जो यूरोपीय संघ में स्थापित नहीं है या यूरोपीय संघ के राष्ट्रीय सक्षम द्वारा विनियमित है। प्राधिकरण।
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