Markets face uncertainty as January's inflation surge pushes Fed rate cut expectations to December, while retail sales show a significant decline. Trump's new 25% steel tariffs and mixed economic signals are creating volatility, and gold is nearing $3,000 despite a strong dollar as traders seek safe havens amid ongoing trade war concerns. Meanwhile, Wall Street remains divided on the Fed’s 2025 policy path.

Key Events and Data to Watch This Week

Tuesday, February 17

• 03:30 - Australia: RBA Interest Rate Decision

• 07:00 - UK: Employment Change (Dec)

• 07:00 - UK: Claimant Count Change (Jan)

• 13:30 - Canada: Consumer Price Index (Jan)

Wednesday, February 18

• 07:00 - UK: Consumer Price Index (Jan)

• 07:00 - UK: Producer Price Index (Jan)

• 19:00 - US: FOMC Minutes

Thursday, February 19

• 00:30 - Australia: Employment Change (Jan)

• 01:15 - China: PBoC Interest Rate Decision

• 22:00 - Australia: Judo Bank Composite PMI (Feb) Preliminary

• 23:50 - Japan: National Consumer Price Index (Jan)

Friday, February 20

• 07:00 - UK: Retail Sales (Jan)

• 09:00 - Eurozone: HCOB Composite PMI (Feb) Preliminary

• 09:30 - UK: S&P Global/CIPS Composite PMI (Feb) Preliminary

• 14:45 - US: S&P Global Composite PMI (Feb) Preliminary

• 15:00 - US: Michigan Consumer Sentiment Index (Jan)

In-Depth Market Analysis

Market Whiplash: Inflation Fears, Fed Uncertainty, and the Dollar's Dilemma

In the early days of last week, U.S. inflation concerns intensified after data revealed the fastest monthly increase in over a year, delaying expectations for the Fed’s first rate cut until December. January’s inflation surged by 0.5% month-over-month—an uptick many economists linked to early-year price adjustments.

Factory-gate prices and retail sales figures, released after the consumer price index, helped ease fears of runaway inflation. The dollar fell to its lowest level since the beginning of the year amid uncertainties spurred by Donald Trump's tariff policies.
Retail sales surged in the final months of 2024, driven by front-loaded purchases due to tariff concerns, but January saw the largest decline in nearly two years.

According to the U.S. Census Bureau, the nominal value of retail purchases fell by 0.9% following a revised increase of 0.7% in the previous month. The control group category, which excludes volatile segments like food services and auto dealerships, declined by 0.8% after an earlier 0.8% rise.

Factors such as the Los Angeles wildfires and severe winter weather likely impacted sales figures. Additionally, the drop may reflect either a temporary cooling of consumer sentiment or the fading impact of earlier tariff-driven purchases. Rising consumer debt levels and high borrowing costs are also weighing on consumption, even as steady income growth supports spending. Following the retail report, U.S. Treasury yields declined and the dollar weakened, prompting swap traders to revise expectations for a rate cut as early as September and increasing total projected rate cuts from 30 to 37 basis points.

Gold's Tug-of-War: Fed Bets, Trade Uncertainty, and Risk Appetite

Gold prices experienced their largest single-day drop in two months on Friday, even though easing inflation concerns and expectations of earlier Fed rate cuts boosted market sentiment.
Since the start of the year, traders have flocked to gold as a safe haven despite high U.S. yields and a strong dollar, pushing prices close to an all-time high near $3,000. Concerns over Trump’s potential for sweeping global tariffs and an ensuing trade war had previously dampened risk appetite.
However, Trump's move from broad-based tariffs to more targeted measures alleviated some trade war fears and revived risk appetite—pushing traders into relatively riskier assets. The S&P 500 hovered near record highs, and the tech index reached new peaks.
Despite the short-term pressure from rising risk sentiment, gold maintains a positive long-term outlook, especially as market expectations for Fed rate cuts remain supportive of non-yielding assets.

Australian Dollar on Edge as RBA Weighs First Rate Cut in Years

On Tuesday, the Reserve Bank of Australia (RBA) is set to announce its interest rate decision. Amid global trade uncertainties and domestic election-related concerns, the RBA is widely expected to deliver its first rate cut in four years—a quarter-point reduction that would bring borrowing costs down to around 4.1%. Money markets are already pricing in an 85% probability of a cut.
Nevertheless, rising consumer spending, supported by tax cuts and government subsidies, as well as uncertainties in U.S. trade policy, could prompt caution. Should the RBA decide to hold rates steady, the Australian dollar—already benefiting from a softening Trump stance on tariffs—might gain further momentum.

Japan’s Economy Surges, Strengthening BoJ Rate Hike Expectations

Japan’s economy outperformed expectations in Q4 2024, growing at 0.7% quarter-over-quarter—an improvement from the previous 0.3%—and posting a 2.8% annual growth rate. These robust figures bolster expectations that the Bank of Japan (BoJ) will persist with its rate hike trajectory.
Speculation about another BoJ rate hike has led institutional traders to adopt a more bullish stance on the yen, with net long positions reaching their highest levels in nearly four years. Swap traders are now pricing in an 80% probability that the BoJ will raise rates by July. Factors such as rising nominal wages and persistent price pressures further support a hawkish outlook from the BoJ.

China’s Central Bank Decision in Focus, but No Action Expected

Traders will closely monitor the People's Bank of China (PBoC) on Thursday as it announces its interest rate decision. However, no policy changes are anticipated.
Recent PBoC communications suggest that the central bank remains committed to stabilizing the yuan, which has depreciated amid trade-related concerns. PBoC Governor Pan Gongsheng has reaffirmed the commitment to maintaining yuan stability, even as policymakers acknowledge deflationary pressures. In this environment, further monetary easing is unlikely as officials seek to protect the local currency.

Key UK Inflation and Labor Market Data on the Radar

This week, the UK is set to release critical data on inflation and the labor market. Inflation in January is expected to have reached its highest level in ten months, with economists forecasting a 2.8% year-over-year increase in consumer prices. Persistently high inflationary pressures might prompt the Bank of England (BoE) to take a more cautious stance on rate cuts.
Additionally, labor market data will be under scrutiny, with forecasts suggesting that average earnings (excluding bonuses) increased by 5.9%, up from 5.6%. Strong wage pressures like these further support expectations that the BoE will maintain a cautious monetary policy stance.