Weekly economic commentary: Increased uncertainty complicates the FOMC's job

Wells Fargo Research Team Wells Fargo

Summary

United States: February bounce more likely a head fake

Retail sales, industrial production, existing home sales and housing starts all jumped in February, rebounding from the declines posted the month prior. On closer examination, however, the underlying data point to economic growth hitting a soft patch.
Next week: New Home Sales (Tue.), Durable Goods (Wed.), Personal Income & Spending (Fri.)

International: Active week for foreign central bank announcements

It was a busy week for foreign central bank announcements. The Bank of England and Bank of Japan both held rates steady, though we see the former as still on course for a May rate cut, and the latter for a May rate hike. Sweden's central bank held rates steady, while the Swiss National Bank cut its policy rate by 25 bps, and in both cases, we view the easing cycle as likely finished. Brazil's central bank raised its Selic Rate 100 bps and signaled a slower pace of tightening going forward.
Next week: Eurozone PMIs (Mon.), Norges Bank Policy Rate (Thu.), Banxico Policy Rate (Thu.)

Interest rate watch: Increased uncertainty complicates the FOMC's job

As widely expected, the FOMC kept its target range for the federal funds rate unchanged at its policy meeting this week. The post-meeting statement noted the obvious by stating "uncertainty around the economic outlook has increased."

Topic of the week: Thoughts on Germany's fiscal reform

A sea change in German fiscal policy is underfoot with a massive package of fiscal stimulus measures for defense and infrastructure expected to be signed into law today. At the core of the pro-growth policy is an adjustment to the country's famously strict borrowing rules and fiscal austerity paired with a renewed energy for German rearmament.

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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.