RBA and RBNZ Cut Rates, Inflation Remains a Concern (24 – 28 Feb)

The dollar index fell as weak US business sentiment and stagnant PMI data fueled speculation on Fed rate cuts, while Trump's limited tariffs eased concerns.

The euro hovered below $1.05 with weak Eurozone PMI data and Germany's upcoming election.
Gold closed at $2,940, near record highs, for the eighth weekly gain, driven by rising trade tensions and geopolitical risks. Swiss gold exports surged, and silver remained near four-month highs as safe-haven demand increased.
US 2-year Treasury yields declined to 4.20%, while 10-year yields ended the week lower at 4.4%.

RBA Interest Rate Decision (Feb)

The Reserve Bank of Australia (RBA) cut its cash rate by 25bps to 4.1% in February, marking the first cut since November 2020. Slowing inflation and concerns over weak private demand prompted the move, though the RBA remains cautious about further easing. Global risks persist, and the board highlighted uncertainty in household spending recovery. The interest rate on Exchange Settlement balances was also reduced by 25bps to 4.0%.

RBNZ Interest Rate Decision

The Reserve Bank of New Zealand (RBNZ) cut its official cash rate (OCR) by 50bps to 3.75%, the lowest since 2022, as economic growth slowed and inflation eased to 2.2% in Q4 2024. New Zealand’s economy has contracted for five consecutive quarters, and wage growth continues to decline, showing weaker labor demand.

UK CPI (YoY) (Jan)

The UK’s inflation rate rose to 3% in January 2025, up from 2.5% in December, surpassing expectations. Transport costs jumped (1.7% from -0.6%) due to higher airfares and fuel prices. Food prices also increased (3.3% from 2.5%), along with recreation, culture (3.8% from 3.4%), and education (7.5% from 5%) due to a 20% VAT on private school fees. Annual core inflation rose to 3.7% from 3.2%, while monthly CPI fell 0.1%, less than the expected 0.3% drop.

Initial Jobless Claims

US initial jobless claims rose by 5,000 to 219,000 for the week ending February 15th, above expectations of 215,000. Continuing claims stood at 1,869,000, aligning with forecasts. The four-week average fell by 1,000 to 215,250, indicating a still-tight labor market. Federal workers affected by layoffs from the new Department of Government Efficiency (DOGE) file separately under the UCFE program.

Philadelphia Fed Manufacturing Index (Feb)

The index fell to 18.1 in February from 44.3 in January, below the forecast of 20, signaling slower growth. New orders (21.9 vs. 42.9), shipments (26.3 vs. 41), unfilled orders (1.4 vs. 24), and inventories (-0.4 vs. 11.7) all declined. Employment softened (5.3 vs. 11.9), and the workweek shortened (2.9 vs. 20.5). Prices paid (40.5 vs. 31.9) and prices received (32.9 vs. 29.7) increased. Growth expectations over the next six months fell to 27.8 from 46.3.

S&P Global Services PMI (Feb)

The index dropped to 49.7 in February from 52.9 in January, marking the first contraction in over two years. Weak new orders and political uncertainty weighed on business sentiment, which hit a five-month low. Firms cut staff after two months of hiring. Input costs rose to a four-month high due to tariffs, food, and wage increases, but competitive pressures forced firms to lower selling prices.

S&P Global Manufacturing PMI (Feb)

The index rose to 51.6 in February from 51.2 in January, beating expectations of 51.5 and reaching its highest level since June 2024. Factory output grew for the second month, but new order growth slowed, and employment gains stalled. Supplier delivery times lengthened for a fifth straight month but at a slower pace, indicating ongoing but easing supply chain pressures.

Currencies

The dollar index fell for the third straight week, nearing early December levels as US business sentiment weakened. Flash PMI data showed stagnant activity, with a drop in services offsetting a slight manufacturing rebound. Trump's limited tariffs eased inflation concerns, giving the Fed potential room for cuts, but FOMC minutes signaled a cautious stance.

The euro traded just below $1.05 ahead of Germany's election and weak Eurozone PMI data (50.2 vs. 50.5 expected). Polls suggest the CDU/CSU bloc will win but need coalition partners. The US signaled reduced support for Ukraine while negotiating with Russia. Trump’s planned 25% tariffs on key imports raised concerns for European carmakers.

The British pound strengthened to $1.265, its highest since December 17, after outperforming inflation data. February PMI showed business stagnation and rising job losses, fueling stagflation fears. Retail sales beat expectations, and the UK posted a £15.4 billion budget surplus, though below forecasts. Consumer confidence remained negative but improved.

The Japanese yen ended the week higher despite strong inflation data reinforcing BOJ tightening expectations. Core inflation hit 3.2% in January (vs. 3.1% forecast), and headline inflation rose to 4%, a two-year high. BOJ Governor Ueda reaffirmed readiness to act against market fluctuations, while board member Takata hinted at further policy adjustments.

Commodities

Gold ended the week around $2,940 per ounce, near its record high of $2,950, marking its eighth weekly gain. Investors turned to trusted metals with ongoing global volatility, especially after Trump’s announcement of new tariffs on lumber, automobiles, semiconductors, and pharmaceuticals, adding to existing duties on Chinese imports, steel, and aluminum. Geopolitical risks also rose as reports suggested Trump might reconsider US support for Ukraine in talks with Russia. Meanwhile, Swiss gold exports increased year-over-year, with shipments to the US reaching a 13-year high.

Silver gained, staying near four-month highs. Market unease grew after Trump labeled Ukrainian President Zelenskiy a dictator on peace talks with Russia. Fed officials signaled they want more inflation progress before considering rate cuts, citing risks from Trump's tariff policies.

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