Market Watch: U.S. PCE Data Awaited

Financial and commodity markets analytics

The possibility of a 25% tariff on Canada and Mexico has bolstered the US dollar, though global equity markets remain strong. Investors remain cautious due to uncertainties surrounding trade policies. The US dollar exhibits mixed performance against G10 currencies, fluctuating within a narrow range. The Canadian dollar and Mexican peso experienced declines late in the previous session but are now relatively stable. The Mexican peso has depreciated by 2.2% this week, marking it as the weakest emerging market currency. Meanwhile, Brazilian and Colombian currencies have shown moderate gains. Gold recently reached a record high before pulling back. Oil prices remain within their recent range, with concerns that tariffs on Canadian oil could drive up US gasoline costs.

Asia Pacific Markets

The yen experienced fluctuations amid shifting US Treasury yields. The US dollar briefly tested its lowest level against the yen since mid-December before rebounding. Japan’s economic data presented a mixed picture: retail sales declined in December, while industrial production showed minor growth. The Bank of Japan remains committed to a tightening policy, planning to phase out a significant stimulus program.
Meanwhile, China's offshore yuan held steady, with broader dollar strength pushing it above 7.30 for the first time since 2017. Investors are watching the upcoming Caixin PMI report, though only a slight improvement is expected. Additionally, China’s recent technological advancements could challenge US dominance in the semiconductor industry.

European Markets

The euro has been on a downward trajectory for five consecutive sessions, with recent losses triggered by the renewed US tariff threats. Despite a temporary boost following comments from the ECB president, the euro failed to maintain gains. Inflation data from Germany, France, and Spain suggest price pressures remain stable but not significantly declining. Market expectations indicate at least two ECB rate cuts in the first half of the year.
Meanwhile, the British pound has displayed resilience, consolidating around $1.24 after retreating from earlier gains. Analysts suggest the correction may not be complete, with further upward movement possible. The UK bond market has stabilized, with 10-year yields declining since their peak earlier this month.

American Markets

The US dollar index rebounded after holding support near 107.50, reaching a six-day high due to renewed tariff threats. The broader recovery since Monday has cast doubt on previous concerns of a market top. Economic data releases are unlikely to significantly impact Federal Reserve policy, though GDP figures suggest strong consumer spending. Inflation metrics indicate a slight increase in headline inflation, while core inflation remains unchanged. Additionally, labor costs have moderated but continue to rise faster than pre-pandemic averages. Overall, the US economy remains stable, with investors closely monitoring any further developments in trade policy that could influence currency and equity markets.