The major assets shrugged off economic data releases in favor of pricing in global trade headlines, central bank commentary, and overall risk sentiment.
Which assets turned lower and which ones gained from yesterday’s headlines?
We have the deets!
Headlines:
- On Tuesday night, FOMC Vice Chair Philip Jefferson said “We can maintain policy restraint for longer” if the economy remains strong and inflation doesn’t move sustainably toward 2%
- BOJ Head of Monetary Affairs Kazuhiro Masaki said the central bank will “continue to raise interest rates” if underlying inflation heads to 2% as projected
- ANZ: New Zealand commodity prices rose 1.8% m/m in January after a 0.2% m/m uptick in December
- Japan average cash earnings for December: 4.8% y/y (3.6% forecast, 3.9% previous); Real wages increased from 0.5% y/y to 0.6% y/y
- China Caixin services PMI for January: 51.0 (52.3 forecast, 52.2 previous)
- China officially launched WTO dispute over Trump tariffs
- ADP Private Payrolls change for January 2025: 183K (120K forecast; 176K previous); worker pay grew by 0.1% m/m or 4.7% y/y
- U.S. trade deficit widened from $78.9B to $98.4B ($96.5B forecast) in December as imports surged ahead of Trump’s inauguration
- U.S. ISM services PMI missed estimates despite uptick in employment
- EIA: U.S. crude oil inventories for the week ending January 31: 8.7M (2.4M forecast, 3.5M previous)
- FOMC member Tom Barkin still expects inflation to decelerate and the job market to stabilize but dropped his December “lean” toward more rate cuts
- FOMC member Austan Goolsbee warned of potential inflationary impact of tariffs
- Iran calls for OPEC to unite against potential U.S. oil sanctions after Trump reimposed a “maximum pressure” campaign against the republic
- U.S. Postal Service reverses decision to halt parcel service from China
Broad Market Price Action:
Dollar Index, Gold, S&P 500, Oil, U.S. 10-yr Yield, Bitcoin Overlay Chart by TradingView
The major assets saw a bit of a tug-of-war on Wednesday, with weak U.S. services data, trade tensions, and Fed commentary pulling them in different directions. In Europe, PMIs showed the economy teetering between growth and contraction—Germany held up, but France stayed in the red. Back in the U.S., ADP payrolls topped forecasts, though ISM services slipped. The trade deficit ballooned to $98.4 billion in December, the second-biggest on record, thanks to record-high imports ahead of Trump’s inauguration.
Fed officials Barkin and Goolsbee sounded cautious on rates, citing uncertainty over new tariffs. That backdrop left European stocks mixed, while U.S. equities bounced back from early tech-driven losses. Alphabet’s weak cloud revenue and AMD’s soft data center sales hit hard, but falling Treasury yields and easing trade war jitters helped lift sentiment.
Treasury yields plunged, with the 10-year dropping to 4.43% after steady auction size signals. Gold hit a new record near 2,882 before settling at 2,869, fueled by trade worries and central bank buying.
Meanwhile, bitcoin pulled back as U.S.-China tensions and tech weakness dented risk appetite. Oil slid to 71.19 on bigger-than-expected inventories and China concerns, though losses were capped after Iran urged OPEC unity against possible U.S. sanctions.
FX Market Behavior: U.S. Dollar vs. Majors:
Overlay of USD vs. Major Currencies Chart by TradingView
The U.S. dollar slid lower on February 5, weighed down by a mix of trade tensions, soft economic data, and cautious Fed signals. The decline started in Asia after China filed a WTO complaint and announced retaliatory tariffs on U.S. imports, setting a bearish tone. The yen led gains, boosted by strong wage growth and hawkish BOJ comments that fueled rate hike expectations.
The dollar’s struggles continued in Europe, despite weak regional PMI data that typically would’ve offered support. Instead, a widening U.S. trade deficit—nearing record levels—deepened concerns about the dollar’s outlook. Brief relief came from stronger-than-expected ADP jobs data, but it was short-lived as ISM services missed forecasts, pointing to cracks in the economy’s most resilient sector.
Adding to the pressure, Fed officials Barkin and Goolsbee struck a cautious tone on rate policy, citing uncertainty around new tariffs. The Treasury’s announcement of steady auction sizes triggered a bond rally, pushing the 10-year yield down to 4.43% and further dampening the dollar’s appeal.
Upcoming Potential Catalysts on the Economic Calendar:
- Switzerland unemployment rate at 6:45 am GMT
- Germany factory orders at 7:00 am GMT
- U.K. construction PMI at 9:30 am GMT
- Eurozone retail sales at 10:00 am GMT
- BOE monetary policy decision at 12:00 pm GMT
- U.S. Challenger job cuts at 12:30 pm GMT
- U.S. initial jobless claims at 1:30 pm GMT
- U.S. preliminary nonfarm productivity and unit labor costs at 1:30 pm GMT
- Canada IVEY PMI at 3:00 pm GMT
- Germany Bundesbank President Nagel to speak at 4:15 pm GMT
- FOMC member Waller to speak at 7:30 pm GMT
- FOMC member Daly to speak at 8:30 pm GMT
- BOE Governor Bailey to speak at 9:50 pm GMT
- FOMC member Logan to speak at 10:10 pm GMT
Traders will likely focus on the BOE monetary policy decision at 12:00 pm GMT, which could trigger sharp moves in GBP pairs, while U.S. labor data—including initial jobless claims and productivity figures at 1:30 pm GMT—may influence Fed rate expectations.
Later, speeches from FOMC members Waller, Daly, and Logan could potentially spark further U.S. dollar moves heading into the U.S. close.
Don’t forget to check out our brand new Forex Correlation Calculator when taking any trades!
