Data flow was relatively light in the latest trading sessions, leaving the market spotlight mainly on geopolitical headlines, as well as mid-tier U.S. reports.
In particular, the CB consumer confidence index took center stage, as downbeat results led to another day in the red for Treasury yields.
Here are the updates you need to know.
Headlines:
- ECB official Nagel cautioned against rushing interest rate cuts, citing a fairly encouraging inflation outlook
- German final GDP for Q4 2024 confirmed at -0.2% as expected
- Friedrich Merz’s CDU/CSU alliance confirmed that they will be looking to pair up with the SPD to form a more centrist coalition
- ECB official Schnabel reiterated that high rates are not holding back spending
- U.S. Treasury Secretary Bessent warned that economy is “brittle underneath”
- Mexico President Claudia Sheinbaum said they aim to close a debt deal with Trump by next week
- U.S. House Speaker Johnson suggested delaying the budget vote, as Congress struggles to pass a budget resolution for Trump’s tax cuts
- U.S. CB consumer confidence index slipped from 104.1 to 98.3 in February vs. 102.7 forecast
- U.S. house price index rose 0.4% m/m in January vs. 0.2% forecast, previous reading upgraded to 0.4% gain
- Richmond manufacturing index improved from -4 to +6 versus expected -3 reading for February
- FOMC member Barkin emphasized that more caution is needed in last stages of inflation fight, policy should remain moderately restrictive
- Ukraine agreed to U.S. minerals deal after the latter dropped demands for a right to $500 billion in potential revenue
Broad Market Price Action:
Dollar Index, Gold, S&P 500, Oil, U.S. 10-yr Yield, Bitcoin Overlay Chart by TradingView
Bears painted the town red on Tuesday, as risk assets like commodities and U.S. equities chalked up steep losses for the day, while Treasury yields extended their decline for the fifth consecutive session, falling to their lowest levels since early December.
Investors appear to be pricing in stronger odds of multiple Fed rate cuts this year, leading the benchmark 10-year yield to slip 10 basis points to 4.29%. Weaker than expected U.S. CB consumer confidence data was seen as the main culprit for the decline in U.S. bond yields, as the reading fell from 104.1 to 98.3 versus the 102.7 forecast.
U.S. equity indices also remained under pressure, with the S&P 500 down 0.5% as traders reassessed growth prospects given the sour mood in the consumer sector.
Crude oil prices tumbled, with WTI breaking below the psychologically important $70 level to trade at $69.10 and close 2.50% lower for the day. This sharp decline came amid optimism about a potential end to the Russia-Ukraine war, which could bring more of the energy commodity flowing back in the global markets, as well as concerns about demand due to tariffs.
Gold retreated from its recent highs, falling $35 to $2,916 as profit-taking set in after its recent rally, though the precious metal remained well-supported by expectations of Fed rate cuts, trimming its losses to a little over 1% for the day.
Bitcoin continued to exhibit high volatility, slipping below the $90,000 support zone to dip near $88,921, with digital assets generally following the broader risk-off sentiment.
FX Market Behavior: U.S. Dollar vs. Majors:
Overlay of USD vs. Major Currencies Chart by TradingView
The U.S. dollar, which was already under some selling pressure leading up to the U.S. session, faced increased selling pressure following the release of disappointing economic data.
The Conference Board’s consumer confidence index falling to 98.3 in February (versus 104.1 in January and below the 102.3 forecast) heightened worries about economic growth and increased bets on interest rate cuts by the Fed this year.
However, the dollar managed to keep its head above water against commodity currencies, raking in gains against CAD and NZD while limiting its losses to AUD as risk-off flows were also in play. Still, USD proved to match to its safe-haven rivals, JPY and CHF, while also losing ground to other European currencies.
Upcoming Potential Catalysts on the Economic Calendar:
- BOJ core CPI at 5:00 am GMT
- German GfK consumer climate index at 7:00 am GMT
- Swiss UBS economic expectations index at 9:00 am GMT
- FOMC member Barkin’s speech at 1:30 pm GMT
- U.S. new home sales at 3:00 pm GMT
- U.S. EIA crude oil inventories at 3:30 pm GMT
- BOE MPC member Dhingra’s speech at 4:30 pm GMT
- FOMC member Bostic’s speech at 5:00 pm GMT
It’s another light day in terms of top-tier data releases, so make sure to keep your eyes and ears peeled for geopolitical headlines that could shape overall market sentiment. In particular, look out for updates on Russia-Ukraine talks, as well as government budget plans that could influence USD direction.
Make sure to stay tuned for policy-related remarks from FOMC members Barkin and Bostic, too!
Don’t forget to check out our brand new Forex Correlation Calculator when taking any trades.
