On February 11th, Federal Reserve official Lorie Logan stated on Tuesday that she holds a "cautiously optimistic" view on whether the current policy interest rate can guide inflation back to the 2% target while maintaining stability in the job market. She emphasized that economic data in the coming months would validate this assessment. Logan pointed out: "If inflation continues to decline and the labor market remains stable, it would indicate that the current policy stance is appropriate, and no further rate cuts would be needed to achieve the dual mandate." However, she added that if a decline in inflation is accompanied by a significant weakening of the job market, "then it might be necessary to cut rates again. But at this stage, I am more concerned about inflation remaining stubbornly high." She noted that after three rate cuts last year, the downside risks facing the labor market have "significantly eased," but this has also introduced additional upward pressure on inflation. Logan believes the current level of interest rates has a limited constraining effect on economic activity, especially against the backdrop of an economic rebound and inflation persistently exceeding the target for nearly five years. Logan expects inflation to gradually improve this year and indicated that some initial positive signs have been observed.
Furthermore, the latest research by European Central Bank economists shows that US tariff policies are hindering economic growth and inflation levels in the Eurozone. However, the research also points out that the sectors most severely impacted by the tariffs are also the most sensitive to interest rate changes. This suggests that the European Central Bank's potential interest rate cuts to ease monetary policy could partially offset the downward price pressure caused by the tariffs. The research, published on the ECB's official blog on Tuesday, analyzed that the demand-reducing effect of the tariffs outweighs the inflationary pressure they create on supply chains, ultimately exerting a downward drag on the overall price level. According to the study's estimates, a 1% decline in Eurozone exports to the US due to tariff impacts would lead to a cumulative decrease of approximately 0.1% in the Consumer Price Index after about 18 months. The research further indicates that sectors most affected by the tariffs, such as machinery, automobiles, and chemicals, are precisely those that react most swiftly to interest rate adjustments. This provides potential scope and justification for the ECB to use monetary policy tools to buffer against external trade shocks.
Key data to watch today includes the US January Nonfarm Payrolls change (seasonally adjusted), the US January Unemployment Rate, and Canada's December Building Permits Month-over-Month.
USD Index The USD Index experienced consolidation with a slight gain yesterday, currently trading around 96.80. Besides short-covering providing some support, hawkish comments from a Fed official during the session, which tempered expectations for Fed rate cuts, were a significant factor helping the index stabilize and halt its decline. However, weak US retail sales data released during the session limited the currency's rebound. Today, focus is on resistance near 97.30, with support around 96.30.
EUR/USD The Euro declined slightly yesterday, currently trading around 1.1900. Profit-taking exerted some selling pressure, and the stabilization of the USD Index, supported by the Fed official's hawkish remarks dampening rate cut expectations, also weighed on the Euro. Nonetheless, weaker-than-expected US economic data limited the pair's downside. Today, watch for resistance near 1.2000, with support around 1.1800.
GBP/USD The British Pound edged lower yesterday, currently trading around 1.3650. Aside from profit-taking and technical selling pressure near the 1.3700 level, hawkish comments from the Fed official that cooled Fed rate cut expectations were a key factor pressuring the Pound. Additionally, concerns about UK political uncertainty also contributed to the selling pressure. Today, focus is on resistance near 1.3750, with support around 1.3550.