Last week was marked by significant macroeconomic events and policy decisions that influenced the forex market, commodities, and global indices.
Forex Market Overview
- U.S. Dollar (USD): The dollar experienced its third consecutive weekly decline. This downward trend was influenced by mixed signals from the Trump administration regarding trade policies, including the imposition of a 10% tariff on Chinese imports and proposed tariffs on steel and aluminum. These policy uncertainties led to diminished investor confidence in the greenback.
- Japanese Yen (JPY): The yen saw volatility, initially strengthening to 149.285 per dollar following an unexpected rise in Japan’s core inflation, which reached a 19-month high in January. However, it later retreated after the Bank of Japan’s Governor signaled potential increased government bond purchases to control rising long-term interest rates.
- Canadian Dollar (CAD): The loonie weakened by 0.4% against the U.S. dollar during the week. This depreciation was attributed to the Bank of Canada’s indication of possible interest rate cuts to counteract potential trade tensions, especially in response to U.S. tariffs. Additionally, a 2.9% drop in oil prices, a key Canadian export, further pressured the currency.
Macroeconomic Data and Events
- United States: Business activity in the U.S. nearly stalled in February, with the S&P Global U.S. Composite PMI Output Index dropping to 50.4, a 17-month low. This slowdown was largely due to concerns over tariffs and significant federal government spending cuts. The Trump administration’s policies, including additional tariffs on Chinese imports and proposed cuts led by the Department of Government Efficiency, have unsettled businesses and consumers alike.
- Japan: The unexpected rise in core inflation, reaching its fastest pace in 19 months, suggests increased price pressures. This development has led to speculation about potential shifts in the Bank of Japan’s monetary policy stance.
- Canada: Retail sales grew by 2.5% in December, primarily due to a sales tax holiday. However, preliminary estimates indicate a 0.4% decline in January, reflecting potential vulnerabilities in consumer spending.
Commodities and Indices
- Oil Prices: Oil prices declined by over 2% during the week, settling at $70.40 per barrel. This drop was influenced by reduced Middle Eastern risk premiums and ongoing supply disruptions in Russia.
- Global Equities: U.S. stock markets experienced downturns, with the S&P 500, Dow Jones, and Nasdaq all closing lower. Investor concerns were heightened by President Trump’s rapid policy changes, including significant spending cuts and new tariffs. In contrast, European stocks saw slight gains, with the Stoxx 600 index managing a modest weekly increase, despite volatility ahead of Germany’s upcoming election.
- Transportation Stocks: The transportation sector faced significant challenges, with the Dow Jones Transport Average falling over 2.6%, marking its most substantial daily decline since December 18. Companies like Old Dominion and Avis Budget experienced notable losses, driven by weak economic data and tariff-related concerns.
Impact on Currency Movements
The interplay of these macroeconomic events, commodity price fluctuations, and policy decisions led to increased volatility in the forex market. Currencies of countries directly affected by trade policies and economic data releases, such as the USD, JPY, and CAD, experienced notable movements. Traders and investors remained cautious, closely monitoring policy announcements and economic indicators to navigate the uncertain landscape.
