Fed Stays Course, ECB & BoE Cautious (24-28 March)

The US dollar index rose toward 104, ending the week higher as the Fed held rates steady but reaffirmed plans for two cuts in 2024. Powell downplayed Trump’s tariffs, citing no urgency for more cuts. Trade tensions and economic uncertainty supported the dollar.

The euro pulled back from a five-month high after Lagarde warned of slower growth and said a 25% US tariff could cut Eurozone growth by 0.3pp. Villeroy hinted at rate cut room, but markets now see only two ECB cuts this year.

The pound fell below $1.30 as the BoE held rates at 4.5% and took a cautious stance. Unemployment held at 4.4%, while wage growth slowed to 5.8%.

The yen weakened to 149 per dollar after Japan’s core inflation eased to 3%, still above forecasts. The BOJ kept rates at 0.5%, while global uncertainty and a stronger dollar pressured the yen.

Gold traded near $3,030, eyeing a third weekly gain, supported by Fed rate cut signals and Middle East tensions. Silver fell over 2% to $33, hit by China growth concerns, though prices stayed near five-month highs due to tight supply and Trump’s tariffs.

US Treasuries slipped, with 2-year yields near 3.94% and 10-year at 4.22%. Japan’s 10-year bond stayed flat after last week’s high, while Germany’s 10-year yield dropped to 2.75%.

US Retail Sales (MoM) (Feb)

Retail sales rose 0.2% in February, rebounding from a revised 1.2% drop in January, but falling short of the 0.6% forecast. 7 of 13 categories declined, including food services (-1.5%), gasoline (-1%), clothing (-0.6%), and auto dealers (-0.4%). Gains were led by nonstore retailers (+2.4%), health & personal care (+1.7%), and food & beverage (+0.4%). Core retail sales (used in GDP) jumped 1%, reversing a 1% decline and beating the 0.2% forecast.

BoJ Interest Rate Decision

The BoJ held rates at 0.5%, the highest since 2008, matching expectations. Following January’s third rate hike, the bank remains cautious due to global risks, higher U.S. tariffs, and a fragile domestic recovery. Private consumption grew on wage gains, while exports and output stagnated. Inflation remained between 3.0%-3.5%, driven by services, with core CPI expected to rise gradually.

EU CPI (YoY) (Feb)

Eurozone inflation fell to 2.3% in February, down from 2.5% in January.

Fed Interest Rate Decision

The Fed held rates at 4.25%-4.5%, pausing its cut cycle that began in January. It still projects 50bps in cuts for 2025, but GDP growth was revised down to 1.7% (from 2.1%), and to 1.8% for 2026 and 2027. PCE inflation forecasts rose to 2.7% for 2025 and 2.2% for 2026. The jobless rate is expected to rise slightly to 4.4% in 2025. Starting in April, the Fed will slow its balance sheet runoff, cutting the Treasury redemption cap from $25B to $5B.

SNB Interest Rate Decision (Q1)

In March 2025, the Swiss National Bank cut rates by 25bps to 0.25%, the lowest since September 2022, marking its fifth cut in the cycle. Inflation fell to 0.3% in February (from 0.7% in November), mainly due to lower electricity prices, though service costs remain elevated. Inflation is projected at 0.4% for 2025, and 0.8% for 2026–2027. The SNB expects GDP growth of 1–1.5% in 2025, supported by real wage gains and looser policy, though weak global demand poses a risk. Growth in 2026 is forecast at 1.5%, but geopolitical and trade uncertainties remain.

BoE Interest Rate Decision (Mar)

The BoE held rates at 4.5% in March, with an 8-1 vote, as it remains cautious amid elevated inflation and global uncertainty. Swati Dhingra voted for a 25bps cut. CPI inflation rose to 3.0% in January and is expected to peak at 3.75% in Q3 2025, despite falling energy prices. The BoE emphasized a gradual approach to easing, noting increased trade policy risks and market volatility.

Initial Jobless Claims

In mid-March, initial jobless claims rose by 2,000 to 223,000, just below the 224,000 forecast, while continuing claims increased by 33,000. The data reflects a still-strong labor market despite weak Q1 economic figures and tight policy. DOGE-related claims fell by 514 to 1,066, though many affected workers may delay filing due to severance packages.

Philadelphia Fed Manufacturing Index (Mar)

The index dropped to 12.5 in March from 18.1 in February, but still beat the 8.5 forecast. 31% of firms reported increased activity (down from 41%), while 18% saw declines (vs 23%), and 47% reported no change (up from 35%). New orders fell 13 points to 8.7, and shipments dropped 24 points to 2, though both stayed positive. Employment rose to 19.7, the highest since October 2022, while prices paid jumped to 48.3, the highest since July 2022. Expectations for future activity and new orders declined, but firms still see employment rising, though more slowly.

Existing Home Sales (Feb)

Existing home sales rose 4.2% to an annualized 4.26M units, rebounding from January’s 4.7% drop, and beating the 3.95M forecast. Median price rose 3.8% YoY to $398,400. Inventory increased 5.1% to 1.24M homes, equal to 3.5 months of supply. NAR’s Lawrence Yun noted stable mortgage rates and improved inventory are helping to release pent-up demand.

Currencies

The US dollar index rose toward 104 on Friday, ending the week higher. The Fed held rates steady but reaffirmed plans for two cuts in 2025 while noting rising risks to growth, jobs, and inflation. Powell called Trump’s tariffs "transitory", downplaying inflation concerns and signaling no urgency for more cuts. Trade tension ahead of the April 2 tariff deadline and global growth worries supported the dollar.

The euro fell from a five-month high of $1.09547, following Lagarde’s warning about weaker eurozone growth and the impact of a potential 25% US tariff, which could cut growth by 0.3 pp, and 0.5 pp with EU retaliation. Lagarde said inflation effects would fade, and the ECB would likely not hike. Villeroy signaled room for rate cuts, but markets now expect just two ECB cuts in 2025, while the Fed reaffirmed its two-cut plan.

The British pound dipped below $1.30, down from a four-month high, after the BoE held rates at 4.5% and took a cautious stance on easing. Trade policy uncertainty and new US tariffs raised inflation risks. UK growth remains weak, with unemployment steady at 4.4% and wage growth slowing to 5.8%, matching forecasts.

The Japanese yen weakened to 149 per dollar, reversing earlier gains. Core inflation eased to 3% in February (Jan: 3.2%) but beat the 2.9% forecast, reinforcing the case for further BOJ hikes. The BOJ kept rates at 0.5%, citing global uncertainty and tariff impacts. The stronger US dollar and trade worries added pressure on the yen.

Commodities

Gold hovered around $3,030 per ounce on Friday, near record highs and heading for a third straight weekly gain, driven by dovish Fed signals and safe-haven demand. The Fed confirmed plans for two rate cuts in 2025, while Powell downplayed Trump’s tariffs as "transitory." Middle East tensions escalated with Israel, Hamas, and U.S. military actions, and Trump’s April 2 tariff deadline added to global trade concerns. Gold is up over 15% year-to-date.

Silver fell over 2% to $33, pressured by China’s weak industrial outlook as Beijing introduced new stimulus without specifics. Still, the metal held near five-month highs due to supply concerns, partly linked to tariff disruptions.

Equities

Indices have had a flat-to-positive week. While the Nasdaq closed the week flat, the Dow and S&P 500 saw limited gains. The standout performer in the rallies was Netflix, followed by Nvidia and Microsoft. On the red side, Meta and Tesla stood out with approximately 5% drops, while Amazon and Google also ended the week in the negative, joining them.

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