February 10, 2025

“The market has a lot to contend with this week: President Trump’s countless trade headlines, US inflation, UK growth, and potentially some news around the war in Ukraine. Volatility remains elevated as markets juggle a wide range of catalysts.”

Sam Cornford – Head of Trading

USD

With a strong US labour market and the threat of a global trade war always hovering over markets, the dollar is understandably well bid heading into this week. Friday’s jobs report looked weak at first glance – the 143K payrolls figure was below expectations – but the combination of 100K in upward revisions to the previous two months, a drop in the unemployment rate to 4.0%, and a 0.5% jump in average hourly earnings was more than enough to convince investors to pare back their bets on Fed easing this year. Pricing is at only 37bps in easing for 2025, pulling rate spreads wider. On the tariff story, markets have been inundated with developments. Trump has promised 25% tariffs on steel and aluminium, and also reciprocal tariffs to match those already placed on the US by its trade partners. Looking to Asia, Chinese retaliatory tariffs come into effect today, but Japan has so far avoided any impact and PM Ishiba was optimistic that they could be avoided after he met Trump in Washington.

The market will be looking at two events in particular this week. The first is Fed Chair Powell’s two-day testimony to Congress on monetary policy on Tuesday and Wednesday. The second is a CPI inflation print on Wednesday, where there could be some downside risks for the dollar but is unlikely to unsettle hawkish bets.

GBP

While sterling has continued to soften versus the dollar since the BoE’s dovish cut last Thursday, GBP/EUR is back trading to pre-meeting levels this morning. The head-spinning tariff story likely has something to do with that – remember that the pound has a lower sensitivity to US trade policy than the euro, with the UK-US trade relationship dominated by services and coming in at a surplus from the US’ perspective. This week, the market will look for some clarity from the usual arch-hawk Catherine Mann, who shocked us with a vote for a 50bps rate cut last week and speaks tomorrow. The BoE’s damning assessment of the UK economy will be tested by the hard Q4 GDP data on Thursday, too, after having slashed its growth forecasts in half.

EUR

The healthy US jobs report and a deluge of tariff news have hurt the euro over the past couple of days. German Chancellor Scholz’s comment that the EU can strike back on US tariffs ‘within an hour’ likely spooked traders further as Trump moves closer to targeting European industries. The euro will struggle to mount a material comeback for as long as trade risks loom, but there is one potential source of upside this week – the US is set to announce its proposals to end the Russia-Ukraine war. If markets and politicians approve, the resolution of war on the continent would undoubtedly be a boost for European FX. Today, we get a Sentix investor confidence survey, and ECB President Lagarde speaks to the EU Parliament.

Markets

US markets had a wobble on Friday as traders trimmed Fed easing bets. The S&P 500 slipped by 1% and the Nasdaq took a 1.3% blow. It is still European equities outperforming this year – Germany’s DAX is up 14% in only three months, while the wider Stoxx 50 has gained 11% in that time.

Main Economic Events (All Times CET)

8:00am: Norway CPI Inflation
10:30am: Eurozone Sentix Investor Confidence

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