Fed, UK GDP & Trade Tensions: What’s Driving Markets This Week?

Key Themes for the Week Ahead (February 10th – 14th, 2025)

This week will be dominated by U.S. inflation data, UK economic growth figures, and ongoing geopolitical and trade uncertainties. The release of the U.S. Consumer Price Index (CPI) on Wednesday will be pivotal in shaping Federal Reserve rate expectations, while the UK’s GDP data on Thursday will gauge the economic health post-BoE rate cut. Additionally, inflation reports from China and Switzerland will influence their respective currencies and broader market sentiment.

Macroeconomic Developments and Market Impact

U.S. Economy: CPI and Powell’s Testimony to Steer Markets

The U.S. dollar’s trajectory will be shaped by Wednesday’s CPI release, with December’s data showing headline inflation at 2.9% year-over-year and core CPI at 3.2%. Forecasts suggest a marginal cooling, which could bolster expectations of Fed rate cuts. However, a surprise uptick may challenge these assumptions, strengthening the dollar.

Fed Chair Jerome Powell’s testimony before Congress, also on Wednesday, will provide further insight into the central bank’s policy outlook. Should Powell maintain a cautious stance on rate cuts, the dollar may find renewed support. Additionally, Thursday’s Producer Price Index (PPI) and Friday’s retail sales figures will add further clarity on consumer demand and inflationary trends.

United Kingdom: GDP Figures and Political Shifts

The Bank of England’s recent rate cut puts extra emphasis on Thursday’s UK GDP data, which will offer insight into whether the economy avoided contraction in Q4. A weaker-than-expected reading could reinforce expectations for further rate cuts, pressuring the pound. Conversely, a stronger print may provide a short-term boost to sterling.

Political uncertainty could also impact sentiment, with speculation of a cabinet reshuffle by Prime Minister Keir Starmer, particularly concerning Finance Minister Rachel Reeves. Any shifts in fiscal policy direction could add volatility to UK assets.

Switzerland and China: Inflation in Focus

Switzerland’s inflation report, due Thursday, will be closely monitored for signals on the Swiss National Bank’s policy direction. Inflation remains subdued, and another weak reading could reinforce expectations of a March rate cut, weighing on the Swiss franc.

China’s CPI figures, set for release on Sunday, are expected to show a modest increase, potentially indicating a slight pickup in domestic demand. Any unexpected shifts could influence risk sentiment and commodity markets, particularly given China’s economic significance.

New Zealand: RBNZ Inflation Expectations Survey

New Zealand’s inflation expectations report on Thursday will be key in shaping expectations for the Reserve Bank of New Zealand’s next move. If inflation expectations remain elevated, the RBNZ may signal a slower pace of easing, supporting the New Zealand dollar. A decline in expectations, however, could heighten speculation of a 50-basis-point rate cut at its next meeting.

Political & Geopolitical Influences

Trump’s Trade Policies and Market Impact

Trade tensions remain a dominant theme, with President Trump reaffirming plans for higher tariffs on Chinese imports. Beijing has responded with retaliatory measures, imposing duties on key U.S. exports, including coal and agricultural equipment.

This back-and-forth has fuelled market uncertainty, with risk-sensitive assets facing pressure. If tensions escalate, safe-haven demand could benefit the U.S. dollar and Swiss franc while weighing on equity markets and commodity-linked currencies.

U.S. Fiscal Policy and Debt Concerns

Congressional Republicans are working to extend the 2017 tax cuts amid concerns over rising government debt. Any announcements on fiscal policy could influence Treasury yields and inflation expectations, impacting market sentiment.

Market Sentiment and Trading Opportunities

• S. Dollar: CPI and Powell’s testimony will be key—softer inflation data could weaken the dollar, while stronger readings may support it.
• British Pound: GDP figures and political developments will dictate near-term direction. Weak data may pressure sterling, while a positive surprise could spark a rebound.
• Swiss Franc: Inflation trends will shape expectations for an SNB rate cut, with a soft print likely weighing on CHF.
• New Zealand Dollar: The RBNZ’s inflation expectations survey could impact rate cut speculation, influencing NZD’s trajectory.
• Equities and Commodities: Trade tensions and central bank rhetoric will drive risk sentiment. Traders should remain vigilant for geopolitical shifts and policy updates.

As the week progresses, staying informed on macroeconomic releases, geopolitical events, and central bank commentary will be crucial for navigating market volatility.

A Technical Contrarian View on USDJPY

Elliot Wave in full swing! Will USDJPY continue its correction or will the price go up again? Remember, past performance is not an indicator of future results.

USDJPY Elliott Wave Analysis: Impulse Structure Signals Continuation of Downtrend

The attached USDJPY chart reveals a developing Elliott Wave impulse structure, indicating a clear downtrend in progress. An impulse wave comprises five distinct waves—three in the direction of the trend (waves 1, 3, and 5) and two corrective waves against it (waves 2 and 4). In the current scenario, the recent sharp decline marks wave 3, traditionally the most powerful and extended leg within an impulse sequence.

Wave 3: A Significant Low Near 151.20

Wave 3 has bottomed out near the 151.20 level, a move confirmed by the steep price descent and strong bearish momentum visible on the chart. This price action suggests that USDJPY is likely transitioning into wave 4, a corrective phase expected to retrace a portion of wave 3’s sharp decline.

Wave 4: Retracement Targets in Focus

Wave 4 is projected to target the 152.50–153.30 zone, highlighted in purple on the chart. This area aligns with key Fibonacci retracement levels, most notably the 38.2% to 50% retracement of wave 3. This resistance zone represents a potential termination point for the correction, where sellers may re-enter the market, signalling the resumption of the broader downtrend.

Sub-Wave Structure Validates Impulse

The chart also illustrates a smaller degree wave count within wave 3, showcasing its subdivision into five smaller waves. This internal structure reinforces the validity of the Elliott Wave impulse pattern and bolsters the argument that the recent 151.20 low marks the completion of wave 3.

Wave 5: Downtrend Continuation Ahead?

Should the market respect the resistance in the 152.50–153.30 range and begin to turn lower, it would signal the onset of wave 5. This wave could lead to a continuation of the broader downtrend, possibly pushing USDJPY to new lows. Traders will closely monitor price action around this critical resistance to confirm the transition from wave 4 to wave 5 and refine their strategies accordingly.

Summary

The current USDJPY Elliott Wave setup suggests a corrective wave 4 targeting the 152.50–153.30 range before potentially resuming its downtrend in wave 5. However, upcoming macroeconomic events, particularly the U.S. CPI report could either validate or disrupt this technical structure. Traders should remain vigilant, watching for price action around resistance levels and the market’s reaction to fundamental catalysts to adjust their strategies accordingly.

Happy Trading!