Weekly economic and financial commentary

Wells Fargo Research Team Wells Fargo

United States: Almost everything coming up roses

Data released this week garnered further optimism that the economy can power through the Federal Reserve's efforts to corral inflation—an endeavor the Fed could increasingly be construed as achieving. Economic activity ended the year on a better footing than expected, and inflation continued its deceleration.
Next week: Construction Spending (Thu.), ISM Manufacturing (Thu.), Employment (Fri.)

International: Foreign central banks at the forefront

It was a busy week for foreign central banks. The Bank of Japan appears to be on course for an April rate hike, while a dovish Bank of Canada announcement suggested the risks are tilted toward an earlier initial rate cut than our June base case. We still forecast an initial rate cut from the European Central Bank in April, though we acknowledge that risks for a later June move do exist.
Next week: China PMIs (Wed.), Bank of England Policy Rate (Thu.), Eurozone CPI (Thu.)

Interest rate watch: In a holding pattern

As discussed in our Fed Flashlight report released this week, we share the near-universally held view that the FOMC will leave the fed funds rate and pace of quantitative tightening (QT) unchanged at its upcoming meeting on January 31.

Credit market insights: Increased borrowing in the Beige Book

In the most recent Beige Book released by the Fed, a majority of the 12 Federal Reserve Districts reported little or no change in economic activity, reflecting the continuing resilience of the economy. However, closer examination of this month’s Beige Book reveals the cracks that are beginning to emerge in the economy, particularly for household borrowing.

Topic of the week: Sea of red

The recent Houthi militant attacks in the Red Sea have thrown a wrench in global supply chains. Container ship spot rates have jumped as capacity is stretched and popular trade routes are diverted around the southern tip of Africa. For the U.S., the impact may be more muted as businesses look to be in far better shape to weather any potential supply disruption today.

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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.