'Increasingly difficult' to justify any further Fed rate cuts for 2025

Trying to predict the next tariff update to hit the newswires is a bit of a fool's errand, so it is perhaps more productive to focus more on the macroeconomic backdrop.

Last week’s Nonfarm Payrolls report was, once again, consistent with a US labour market that remains strong. Companies continue to create jobs at a healthy clip, the unemployment rate is hovering around levels consistent with full employment, and the report showed a surprise uptick in wages in January - monthly earnings rose at their fastest pace since mid-2023.

All of this positive economic news, plus the looming threat of price hikes from Trump's tariffs, makes it increasingly difficult to justify any further interest rate cuts at all from the Fed in 2025.

With rates in the US remaining almost the highest in the G10, we think that it will be difficult for the dollar to sell-off in spite of its admittedly very expensive levels.