The U.S. dollar index rebounded, supported by solid GDP growth, the Fed’s hawkish stance, and Trump’s 25% tariffs on Mexico and Canada. The EUR/USD declined on expectations of an ECB rate cut, while GBP/USD slipped amid a strong dollar and anticipated BoE easing. The yen strengthened to 154 per dollar as BoJ rate hike bets grew.
Gold hit a record $2,800 per ounce as Trump’s tariff threats fueled trade war fears and economic slowdown concerns. Easing policies from the ECB, BoC, Riksbank, PBoC, and RBI added support, while steady US rates reinforced expectations of two cuts this year. Silver surged to a seven-week high, driven by safe-haven demand and strong industrial use, with the Silver Institute projecting a fifth consecutive market deficit in 2025 despite rising supply.
The 10-year US Treasury yield pulled back slightly this week. Meanwhile, yields on Chinese and Japanese 10-year bonds rose, while Eurozone 10-year yields declined.
US jobless claims dropped by 16,000 to 207,000 for the week ending January 25, well below the expected 220,000. This marks a sharp decline from the nearly two-month high recorded the previous week. Continuing claims fell by 42,000 to 1.86 million, signaling that the labor market remains resilient despite the Fed’s restrictive monetary policy. The data supports the Fed’s stance that the labor market remains strong, providing room to maintain higher interest rates for longer.
China’s NBS Manufacturing PMI unexpectedly declined to 49.1 in January, slipping from 50.1 in December and marking the first contraction in the sector since September. The reading was below market expectations and reflects weakening factory activity ahead of the Lunar New Year. The decline was driven by falling new orders and slower production growth, signaling that economic momentum remains fragile despite government stimulus efforts.
US new home sales increased 3.6% in December to an annualized rate of 698,000, surpassing the expected 670,000. This marked the highest level since September and occurred despite higher mortgage rates, which were driven by concerns that persistent inflation could keep the Fed’s monetary policy restrictive. Strong demand in the housing sector, coupled with limited supply, continues to support home prices despite economic uncertainty.
US durable goods orders fell 2.2% in December, following a revised 2% decline in November, missing forecasts of a 0.6% increase. The drop was largely driven by a 7.4% decrease in transportation equipment, particularly nondefense aircraft and parts, which plunged 45.7%. This was likely due to reduced orders for Boeing, as production issues weighed on the company’s deliveries. Excluding transportation, orders remained flat, suggesting underlying weakness in business investment.
The Conference Board’s Consumer Confidence Index fell 5.4 points to 104.1 in January, marking the third straight monthly decline. While the December figure was revised higher to 109.5, the drop reflects growing concerns over economic uncertainty, inflation, and labor market conditions. Consumers remained cautious about future business conditions and income prospects, which could weigh on spending in the coming months.
The Bank of Canada cut its key interest rate by 25bps to 3.0%, in line with expectations, marking the third reduction since June 2024. The central bank also announced an end to quantitative tightening and plans to resume asset purchases in early March to support economic liquidity. The BoC cited easing inflation, which has now aligned with its 2% target but warned that US tariff threats could slow Canada’s economic recovery. Despite concerns over trade uncertainty, the central bank remains optimistic about GDP growth, forecasting a 1.8% expansion over the next two years.
The Federal Reserve kept interest rates steady at 4.25%-4.5% in its January meeting, pausing after three consecutive cuts in 2024. Chair Jerome Powell emphasized that while inflation has moderated, it remains above target, and the Fed is in no rush to lower rates further. Policymakers highlighted solid economic growth and strong labor market conditions but acknowledged ongoing inflation risks. The Fed removed its previous language about "ongoing progress" toward the 2% inflation goal, signaling a more cautious outlook.
Germany’s economy contracted by 0.2% in Q4 2024, following 0.1% growth in Q3, missing expectations of a 0.1% decline. This marks the second contraction in three quarters, indicating that Europe's largest economy continues to struggle. Weak industrial output, sluggish domestic demand, and ongoing trade challenges weighed on GDP, raising concerns about a possible recession.
The European Central Bank lowered its deposit facility rate by 25bps to 2.75% in its January meeting, marking the fifth rate cut since June 2024. The ECB signaled that additional cuts may be needed due to economic uncertainty and stubborn inflation risks. Policymakers remain cautious, with President Christine Lagarde emphasizing that further easing will depend on upcoming data.
The US economy expanded at an annualized rate of 2.3% in Q4 2024, down from 3.1% in Q3 and missing the 2.6% forecast. Personal consumption remained the main driver of growth, rising 4.2%, the strongest increase since Q1 2023. However, business investment declined, with equipment spending dropping 7.8%, and trade weighed on growth as exports and imports both contracted. Despite slower growth, the economy expanded by 2.8% for the full year, highlighting its resilience amid high interest rates.
Germany’s inflation eased to 2.3% in January, down from 2.6% in December and below the expected 2.6%. Food inflation slowed to 0.8%, while energy prices continued to decline by 1.6%. Core inflation, which excludes food and energy, fell to 2.9%, marking its lowest level in three months. On a monthly basis, consumer prices declined 0.2%, missing expectations of a 0.1% rise.
US PCE inflation rose 0.3% in December, the largest monthly gain in eight months, while core PCE increased 0.2%, in line with forecasts. Annual PCE inflation climbed to 2.6%, marking a third consecutive increase, while core PCE remained at 2.8%. The data suggests that inflationary pressures remain, keeping the Fed cautious about future rate cuts.
The US dollar index rebounded, supported by solid GDP growth, the Fed’s hawkish stance, and Trump’s 25% tariffs on Mexico and Canada. The EUR/USD declined as the ECB cut rates and signaled more reductions. The GBP/USD dipped on expectations of a BoE rate cut next week. The yen strengthened to 154 per dollar on BoJ rate hike bets, with Tokyo’s core inflation hitting an 11-month high. The Canadian dollar weakened as the BoC cut rates and ended quantitative tightening, citing US tariff risks.
Gold hit a record $2,800 per ounce as Trump’s tariff threats fueled trade war fears. Easing policies from the ECB, BoC, Riksbank, PBoC, and RBI supported prices, while steady US rates reinforced expectations of two cuts this year. Silver surged to a seven-week high, driven by safe-haven demand and strong industrial use, with the Silver Institute projecting a fifth consecutive market deficit in 2025 despite rising supply.
After a weak start, the indices ended the week by recovering their losses. The Dow Jones and S&P 500 finished the week with modest gains, while the Nasdaq is set to close with a slight loss after bouncing back from a nearly 3% drop.
When discussing the stocks driving this recovery, Apple stands out with a 5% gain. Meta follows with a 10% increase, and Google also makes the list with a 1% rise.
On the downside, Nvidia stands out with a 14% drop, followed by Microsoft, which saw a 6% decline.
Germany’s Retail Sales Grow 1.1% in 2024Retail sales in Germany increased by 1.1% in real terms and 2.5% in nominal terms in 2024 compared to the previous year, according to preliminary data from Destatis.
Detail Market Awaits Fed, Tariffs, and ECB Cuts as Volatility Rises (01.31.2025)Markets remain volatile as traders assess central bank policies and trade tensions. The Fed held rates steady, while the ECB cut rates to 2.75% and signaled further easing. Trump reaffirmed 25% tariffs on Mexico and Canada, with a 10% tariff on China still under review. Gold surged past $2,800 on safe-haven demand, while silver hit a six-week high.
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