The US markets last week were shaped by two dominant themes: uncertainty surrounding trade policies of the incoming US administration and the impact of robust US economic data. Initial market confusion, driven by ambiguous signals regarding tariffs, created significant volatility. However, this indecisiveness gave way to clarity as strong US data reaffirmed the resilience of the economy, casting doubt on the likelihood of more Fed rate cuts in 2025. US Treasury yields surged as markets recalibrated their expectations for Fed policy, while equities faced notable selling pressure. This dual development provided a substantial boost to Dollar, which ended the week broadly higher. While some traders remain cautious, wary of surprises tied to US political developments, the Dollar's upward momentum appears poised to persist, supported by the hawkish shift in Fed expectations and strong macroeconomic fundamentals. Across the Atlantic, Sterling faced intense pressure, falling sharply as concerns over fiscal de-anchoring took center stage. Rising UK gilt yields, coupled with a weakening Pound, highlighted fears of a negative spiral for the UK's fiscal health. Investors are increasingly concerned that higher borrowing costs could exacerbate fiscal imbalances, particularly in an environment of tepid growth and stagflationary risks. Sterling's underperformance made it the worst performer among major currencies. Elsewhere, Canadian Dollar emerged as the strongest currency of the week, but only for consolidating recent losses. Yen followed Dollar as the third strongest, benefiting from a late-week risk-off environment. On the other hand, Aussie and Kiwi, reflecting their risk-sensitive nature, were among the weakest performers. Euro and Swiss Franc ended in middle positions..... |
