Weekly economic commentary: FOMC's holding pattern continues

Wells Fargo Research Team Wells Fargo

Summary

United States: Risks have risen (but haven't materialized yet)

The trade deficit blew a hole in Q1 productivity growth, and tariffs are anecdotally increasing price pressures in the services sector. But beyond temporary trade-related distortions, tariffs have yet to meaningfully impact the economic data. We anticipate that tariffs will be negotiated down from current levels but still create a stagflationary environment by year-end.
Next week: Federal Budget Balance (Mon.), CPI (Tue.), Retail Sales (Thu.)

International: Foreign central banks in focus

It was a busy week for foreign central bank announcements. The People’s Bank of China, Central Bank of Poland, Czech National Bank and the Bank of England all lowered their central bank policy rates. Sweden's and Norway's central banks held rates steady and kept the door open for more cuts later in the year, while Brazil's central bank raised its Selic rate by 50 bps and signaled the possibility of more tightening going forward.
Next week: India CPI (Tue.), Australia Employment (Wed.), Japan GDP (Thu.)

Interest Rate Watch: FOMC's holding pattern continues

As universally expected, the Federal Open Market Committee decided to keep the target range for the federal funds rate unchanged at 4.25%-4.50% this week. After cutting rates by 100 bps last year, the Committee has now been on hold for three consecutive meetings.

Topic of the Week: What's the deal?

President Trump and U.K. Prime Minister Keir Starmer announced a U.S.-U.K. trade deal on Thursday. While this marks the first agreement since President Trump reignited the trade war earlier this year, the few details disclosed at this point don't necessarily set the precedent that other agreements will be quickly forthcoming or extensive in nature.

Download the Full Report!

Author

Wells Fargo Research Team

Wells Fargo

EUR/USD hits two-day highs near 1.1820

EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold climbs further, focus is back to 45,000

Gold regains upside traction and surpasses the $4,900 mark per troy ounce at the end of the week, shifting its attention to the critical $5,000 region. The move reflects a shift in risk sentiment, driving flows back towards traditional safe haven assets and supporting the yellow metal.

Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave

Bitcoin edges up above $65,000 at the time of writing on Friday, as dust from the recent macro-triggered sell-off settles. The leading altcoin, Ethereum, hovers above $1,900, but resistance at $2,000 caps the upside. Meanwhile, Ripple has recorded the largest intraday jump among the three assets, up over 10% to $1.35.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.