Economic Strength and Tariff Fears Propel Dollar Recovery (10-14 February)

The dollar index fell after weak jobs data, raising doubts about Fed policy. Treasury Secretary Bessent reaffirmed support for a strong dollar and denied Trump is pressuring the Fed for cuts. Markets still expect two 25bps cuts this year. The euro rose above $1.04 as Trump’s tariffs and China’s retaliation fueled uncertainty. The ECB cut rates and may ease further, with markets expecting the deposit rate to drop to 1.87% by December. The pound ended higher despite the BoE’s 25bps cut, with traders pricing in three more cuts this year.

Gold hit a record high, marking six straight weekly gains, driven by central bank purchases, safe-haven demand, and trade tensions. Expected Fed rate cuts and global easing also supported prices. Silver surged to $32.50, on track for its fifth gain in six weeks. A weaker dollar, easing trade tensions, and strong industrial demand kept silver bullish, with the Silver Institute projecting another year of market deficits.

The US 10-year Treasury is set to close the week at around 4.43%, following a sharp pullback. Meanwhile, the 2-year Treasury remains relatively flat, preparing to close the week at 4.23%. In the UK, where the central bank cut rates by 25 basis points earlier this week, the 10-year bond yields have pulled back to 4.46%.

Initial Jobless Claims

Initial jobless claims in the US dropped by 16,000 to 207,000 for the week ending January 25th, well below market expectations. This marks the lowest level of jobless claims in several months, reflecting a resilient labor market despite broader economic concerns.

Eurozone CPI (YoY) (Jan)

Euro area inflation rose to 2.5% in January, exceeding forecasts of 2.4% and reaching its highest level since July 2024. Energy prices drove the increase (1.8% vs. 0.1% in December), while services and food inflation eased. Core inflation held steady at 2.7% for the fifth month, slightly above expectations.

US S&P Global Manufacturing PMI (Jan)

The PMI rose to 51.2, up from 49.4 in December, signaling growth for the first time in six months. New orders increased, but export demand remained weak. Employment continued rising, while input costs and selling prices accelerated. Business confidence hit a 34-month high.

US ISM Manufacturing PMI (Jan)

The index climbed to 50.9, ending 26 months of contraction. New orders surged (55.1 vs. 52.1), while production and employment improved. Price pressures intensified for steel, aluminum, and copper, while plastic resins and diesel saw declines.

JOLTS Job Openings (Dec)

Job openings fell to 7.6 million, below forecasts of 8 million, signaling labor market cooling. Declines were led by professional services, healthcare, and finance, while arts and entertainment saw gains. Hires rose to 5.5 million, while separations increased slightly.

ADP Nonfarm Employment Change (Jan)

Private payrolls grew by 183,000, exceeding expectations of 150,000. Consumer-facing sectors drove hiring, while manufacturing lagged. Annual pay growth slowed to 4.7% for job holders and 6.8% for job changers.

US S&P Global Services PMI (Jan)

The index dropped to 52.9 from 56.8 in December, marking the slowest expansion since April. Job creation reached its highest pace since 2022 while rising labor and material costs lifted output prices.

US ISM Non-Manufacturing PMI (Jan)

The services PMI fell to 52.8 from 54, missing forecasts. Business activity and new orders slowed, while employment and export orders accelerated. Price pressures eased but remained elevated.

BoE Interest Rate Decision (Feb)

The Bank of England cut rates by 25bps to 4.5%, its third reduction since August. The vote was unanimous, defying expectations of an 8-1 split, with two hawkish members backing a 50bps cut. Growth forecasts were downgraded amid weaker economic performance.

Average Hourly Earnings (MoM) (Jan)

Wages rose 0.5% to $35.87, exceeding the 0.3% forecast. Year-over-year growth reached 4.1%.

Nonfarm Payrolls (Jan)

The US added 143,000 jobs, missing expectations of 170,000. Healthcare and retail led job gains. November and December payrolls were revised up by a combined 100,000 jobs.

Unemployment Rate (Jan)

The jobless rate fell to 4.0%, the lowest since May, as the labor force participation rate improved to 62.6%.

Currencies

The dollar index fell after weak jobs data, raising doubts about Fed rate cuts. Treasury Secretary Bessent reaffirmed a strong dollar policy and denied Trump is pressuring the Fed. Markets still expect two 25bps cuts this year. The euro climbed above $1.04 as Trump’s tariffs fueled uncertainty, and the ECB hinted at further easing. The Canadian dollar strengthened as the BoC signaled a dovish policy and planned bond purchases. The yen hit a two-month high after BOJ board member Tamura called for a 1% policy rate. UK traders expect more BoE rate cuts after a 25bps reduction.

Commodities

Gold hit a record high, marking six straight weekly gains, fueled by central bank purchases and trade tensions. Trump's tariff threats and Fed rate cut expectations added support. Silver surged to $32.50, benefiting from a weaker dollar and industrial demand. The Silver Institute predicts another supply deficit in 2025.

Equities

The weakening of the dollar index has contributed to a positive week for U.S. stock indices. The best-performing index was the Nasdaq, which rose by nearly 1.4%. Meanwhile, the S&P 500 and Dow Jones both saw gains of approximately 0.5%.

Stocks that led the rally were highlighted by Nvidia, which saw a 4.5% increase. Following closely were Netflix and Meta, each gaining around 2%. On the other hand, Apple and Meta had a challenging week, with declines of 2% and 3%, respectively. The worst performer was Tesla, which experienced an 8% drop.