ECB, BoE and RBA meetings, employment data from the US, Canada and New Zealand as well as preliminary January CPI from Eurozone and ISM PMI’s will highlight the busy weak ahead of us.
USD
President Trump threatened South Korea that he will increase their tariffs to 25% from 15% as they have still not ratified previously agreed upon trade deal. The move will hit autos, lumber, pharmaceuticals, and all reciprocal tariffs. Trump commented that USD is strong and in a good place and that market is now looking for its fair value. These comments were interpreted as administration’s satisfaction with weak USD and it plunged USD further into the hole with EURUSD crossing 1.20 and AUDUSD crossing the 0.70 level. Later on during the week he threatened Canada with additional 50% tariffs on aircraft. According to the article from Wall Street Journal president and Senate Democrats managed to strike a deal and thus avoid another government shutdown. Trump has confirmed Kevin Warsh as the next Fed Chairman. Kevin Warsh became the youngest Fed Governor at 35, and served as a Member of the Board of Governors from 2006 until 2011.
January consumer confidence plunged to 84.5 from upwardly revised 94.2 print in December while markets were expecting a 90.9 print. This is a terrible reading as it is the lowest since 2014. The difference between “jobs are plentiful” and “jobs are hard to get” is only at 3.1% which is the worst reading since 2016, if we exclude pandemic. This report seems to emphasize divide between top 10% of households by income that are doing all the spending while the bottom 60% are just trying to hang in.
Fed has left the Fed funds rate unchanged at 3.50-3.75% as was widely expected. The statement shows that economic activity continues to expand at a solid pace. While job gains have remained low, but the unemployment rate has shown some signs of stabilization. Inflation remains somewhat elevated. Miran and Waller dissented as they wanted a 25bp rate cut but Powell said that even non voters were in favor of hold. The statement omitted “downside risks to employment rose in recent months” which was interpreted as a slightly hawkish stance from the Fed.
During the press conference Powell stated that data shows 22k job loses per month over past 3 months while it showed 29k gains per month in private employment over that same period. Inflation expectations have declined as there is disinflation in services while price increases seen in goods are mainly due to tariffs. Powell stated that incoming data has been strong and did not clarify whether that will push rate cuts further into the future. He reiterated that Fed remains data dependent. Additionally, he declined to comment on any questions regarding attacks from president, issues pertaining to other departments, gold, silver and USD moves. Powell clarified that he thinks rate is currently at the top of the range for neutral rate. Trump, of course, used the opportunity to again berate Chairman Powell calling him “Too Late” and “moron” and screaming for lower rates.
The yield on a 10y Treasury started the week at 4.20%, rose to 4.28% and finished the week at around 4.26%. The yield on 2y Treasury started the week at 3.59%, rose to 3.62% and finished the week at around 3.52%. Spread between 2y and 10y Treasuries started the week at 63bp and finished the week at 74bp. FedWatchTool sees the probability of a 25bp rate cut at March meeting at around 15% while probability of no change is at around 85%. Silver started the week at $105 and made a 12% gain on Monday only moving to almost $118, then gave it all back on the same day only to rebound again on Tuesday and reach new highs of $121.78 on Thursday then plunged to the low of $74 on Friday. Gold surged past $5000 reaching $5625 on Thursday and then plunging to low of $4700 on Friday and finishing week below $5000. On Friday gold was down 10% while silver was down 30%. Gold was down 3% w/w while silver was down 20% w/w. S&P has briefly crossed the 7000 level.
This week we will have ISM PMI data and NFP on Friday. Expectations are for a headline reading of 40k with the unemployment rate ticking up to 4.5%.
Important news for USD:
Monday:
ISM Manufacturing PMI
Wednesday:
ISM Services PMI
Friday:
NFP
Unemployment Rate
EUR
EU and India have finalized a trade deal after almost two decades of negotiations. Indian Prime Minister Narendra Modi calls it a historic deal. Expectations are that the deal will be implemented within a year. EU has also signed a pact with Mercosur, South American bloc. ECB policymaker Martin Kocher expressed his concerns regarding recent EUR strength caused by declining USD stating that higher exchange rate translates into lower inflation and lower inflation could spur ECB into action. ECB Schnabel, member of the Governing Council, stated that rates are expected to stay at current levels for an extended period of time.
Eurozone Q4 GDP rose 0.3% q/q, same as in Q3, vs 0.2% q/q as expected. Both German and Italian prints also showed growth of 0.3% q/q vs 0.2% q/q as expected with former being up from flat in Q3 and latter up from 0.1% q/q in the previous quarter. French Q4 GDP came in at 0.2% q/q and 1.1% y/y while Spanish GDP grew by 0.8% q/q vs 0.6% q/q as expected. Preliminary January German CPI came in at 2.1% y/y vs 2% y/y as expected and up from 1.8% y/y in December. Increase in food prices was the main reason for higher than expected reading. Spanish CPI printed 2.4% y/y 2.3% y/y as expected and down 2.9% y/y from December print.
This week we will have preliminary January CPI reading as well as ECB meeting. No change to rate is expected but we could see discussion taking place regarding EUR strength caused by the weakening in USD.
Important news for EUR:
Wednesday:
CPI
Thursday:
ECB Interest Rate Decision
GBP
GBP has managed to reach 1.38 level against USD during the week thanks to massive USD weakness but after slightly hawkish press conference from Powell USD has managed to regain some ground and push the pair lower. Pound also managed to gain ground against EUR, but it weakened against all other currencies, most notably NZD and AUD.
This week we will have BoE meeting. With latest inflation report coming in hotter than expected and labour market holding on its own we see almost no chance of rate cut at this meeting. We will get updated economic outlook at this meeting and the expected vote is 5-4.
Important news for GBP:
Thursday:
BoE Interest Rate Decision
AUD
Q4 inflation data came in hotter than expected. Headline number rose 1% q/q and 3.8% y/y, up from 3.2% y/y in the previous quarter. Core print, trimmed mean that RBA targets in a 2-3% range, rose 0.9% q/q and 3.4% y/y, up from 3% y/y in Q3. December CPI rose 1% m/m and 3.8% y/y, up from 3.4% in November. Services inflation accelerated and rose 4.1% y/y led by strong gains in domestic holiday travel and accommodation and further increases in rents. With inflation accelerating and moving further away from the targeted range chances of a rate hike in next week’s RBA meeting are rising dramatically. All four of major Australian banks, CBA, NAB, ANZ and Westpac, are expecting rate hike next week.
This week we will have RBA meeting. Markets are heavily leaning in favor of a 25bp rate hike.
Important news for AUD:
Tuesday:
RBA Interest Rate Decision
NZD
January business confidence printed 64 after a 30-year high 74 print in December. Economic activity remains resilient. Inflation, seen in pricing intentions and cost expectations, is rising to highest levels in years. Additionally, wage pressures are increasing due to wage increases and higher expected wage growth. Consumer confidence for the same month rose to 107.2 from 101.5 in December thus reaching the highest level since August of 2021. Inflation expectations, however, stay very elevated with a 4.6% print.
This week we will have Q4 employment data.
Important news for NZD:
Tuesday:
Employment Change
Unemployment Rate
CAD
BoC has left the overnight rate unchanged at 2.25% as was widely expected. The statement reads that outlook for Canadian economy is vulnerable to unpredictable US trade policies and geopolitical risks as US trade restrictions and uncertainty continue to disrupt growth. New projection sees GDP for 2026 unchanged at 1.1% while 2027 GDP is shaven to 1.5% from 1.6% as seen previously. Bank members see underlying price pressures as being in line with the 2% target which makes them see their current stance on monetary policy as being “appropriate”.
Governor Macklem stated at the press conference that it is hard to predict what the next move will be with all these uncertainties. He added that they are closely monitoring situation and that if some part crystallizes they are ready to assess. Additionally, he stated that USD safe haven status has been dented and expressed his hope that Fed will retain its independence.
This week we will have employment data.
Important news for CAD:
Friday:
Employment Change
Unemployment Rate
JPY
Prime Minister Takaichi saw her administration’s approval rating drop before the elections on February 8. This was the first time it fell below 70% since she became prime minister in October. US Treasury Secretary Bessent ruled out US intervention in JPY which sent currency lower against all majors, apart from USD.
Tokyo CPI for the month of January saw headline number decline to 1.5% y/y from 2% y/y in December. Both core measures, ex fresh food and ex fresh food, energy came in at 2% y/y, down from 2.3% y/y the previous month. The slew of data showed unemployment rate steady at 2.6% in December while retail sales declined -2% m/m and -0.9% y/y.
CHF
SNB total sight deposits for the week ending January 23 came in at CHF449.3bn vs CHF456.2bn the previous week. This is the lowest level of deposits in six months as money is leaving Swissy and looking for better yielding opportunities.
