Weekly economic commentary: Economic momentum holding, for now

Wells Fargo Research Team Wells Fargo

Summary

United States: Economic momentum holding, for now

The economy ended 2024 on a solid note with a 2.3% Q4 increase in real GDP. Volatile inventory swings lowered the headline, but real final sales to domestic private purchasers rose by a robust 3.2%. Fervent consumer spending continues to drive economic activity, while inflation is receding at a snail’s pace. That said, trends in the Employment Cost Index suggest that the labor market is no longer a meaningful source of price pressures.
Next week: ISM Manufacturing & Services (Mon. & Wed.), Employment (Fri.)

International: Foreign central bank bonanza

It was a busy week for foreign central banks, with several institutions offering their first monetary policy assessments of 2025. The European Central Bank lowered its Deposit Rate by 25 bps to 2.75% and delivered commentary that was, in our view, consistent with further easing at upcoming meetings. The Bank of Canada and Sweden's Riksbank also lowered their policy rates by 25 bps, and we have updated our forecast to look for an earlier start to Reserve Bank of Australia policy easing. In the emerging economies, Brazil's central bank delivered a hawkish-leaning 100 bps rate hike, and China's PMI data disappointed.
Next week: Eurozone CPI (Mon.), Bank of England Policy Rate (Thu.), Banxico Policy Rate (Thu.)

Interest rate watch: In little hurry to cut further

As universally expected, the Federal Open Market Committee (FOMC) left its target range for the federal funds rate unchanged at 4.25%-4.50% on Wednesday. With inflation remaining stubbornly above target and real economic activity holding up reasonably well, we see little reason for the FOMC to cut rates in the near term.

Topic of the week: Nobody puts ASI in the corner...except tariffs

The Animal Spirits Index (ASI) finished out 2024 on a soft note, hitting its lowest level since November 2023. The index dropped 0.44 points in December to 0.31—the largest monthly decrease in over a year. Though the ASI remained in positive territory for all of 2024, it has softened considerably from a five-year high of 0.96 in March.

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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.