Following a volatile week for financial markets, investors will focus intently on Wednesday’s FOMC meeting. The Fed is widely expected to hold rates steady and present a somewhat more upbeat view about the economy through the policy statement and Chair Powell’s press conference. In geopolitical developments, Trump backed down on 10% tariffs on the imports from European nations that were opposing his efforts to acquire Greenland. In Fed’s Governor Cook’s case at Supreme Court, judges appeared skeptical of the president’s authority to remove her. Multiple judges expressed concerns about the high stakes of central bank independence in financial markets and the potential economic shocks caused by partisan influence over monetary policy. US Supreme Court verdict on IEEPA tariff’s legal validity is now due on 20th Feb at the earliest since there were no decisions announced in the Jan dates. In US macro data this week we have PPI, initial jobless claims, trade deficit, durable goods orders & consumer confidence. In UST dated supply, we have $69 BN of 2yr auction on Monday, $70 BN of 5yr auction on Tuesday & $44 BN of 7yr auction on Thursday. To summarise, our expectations is on a long hold from Fed till May when Powell leaves as Chair & two cuts of 25 bps each in June & Sep as a new Fed Chair takes office. Currently the inflation employment dynamics are in a stable orbit implying no rush for cuts. We currently do not have any strong views on UST yields seeing the 10yr UST between 4.20-4.40 for short term. On DXY, the continuous erosion of policy stability from Trump administration has led to DXY weakness below 98 levels this week. Currently at 97.6 levels, we expect it to retest the Sep’25 lows of 96.5 levels. In rest of the word data this week, we have Eurozone countries GDP, German IFO & Tokyo CPI. Bank of Canada is expected to remain on a dovish hold in it's meeting on Wednesday.
