Poor data puts USD on 'back-foot' as markets expect two Fed cuts in 2025

Last Friday saw an unusually bad slew of economic data from the US. Business sentiment fell sharply in February, while consumer long-term inflation expectations rose to a 30-year high.

We will await confirmation of this weakening trend in the weekly jobless claims and the February payrolls report in two weeks, but for now this data was enough to keep the dollar somewhat on the backfoot, in spite of the significant increase in geopolitical risks.

With little macroeconomic or policy news to guide currency markets, we will be paying particularly close attention to any developments on tariffs or clarification of the US position with respect to European security in the coming week.

PCE inflation numbers out of the US on Friday will, as always, also be closely monitored by FOMC officials.

Following last week’s disappointing PMI numbers, markets are now back eyeing two interest rate cuts from the Fed this year, as opposed to just one, but this stance will likely be tested this week.