Tariff Diplomacy and Powell’s Testimony: Markets Brace for Policy Cues
Financial markets enter the week of February 10, 2025, balancing renewed trade-war jitters, potential diplomatic efforts between the U.S. and China, and a flurry of key economic releases. President Donald Trump’s ongoing tariff plans and Beijing’s retaliation have rattled global sentiment, but hope lingers for a possible meeting or dialogue between Trump and Chinese President Xi Jinping. Against this backdrop, Federal Reserve Chair Jerome Powell’s semi-annual testimony to Congress and U.S. inflation data loom large, potentially reshaping the interest rate outlook.
1. Trade Diplomacy vs. Tariff Escalation
While Beijing’s counter-tariffs on certain U.S. goods are set to kick in on Monday, investors will watch closely for signs of any high-level talks to soothe tensions. Should fresh negotiations materialize or if the two sides signal progress, risk-sensitive assets—like equities and emerging-market currencies—might recoup losses. Conversely, if rhetoric hardens, expect the U.S. dollar to attract safe-haven demand, especially against currencies perceived as trade-vulnerable.
2. Powell Testimony: Spotlight on Fed Policy
Fed Chair Jerome Powell’s semi-annual Congressional testimony is the centerpiece for monetary policy watchers. Investors will parse every word for clues on how trade tensions, inflation trends, and the labor market might influence future rate decisions.
- Hawkish Tilt: If Powell emphasizes rising wage pressures, it could support the U.S. dollar and weigh on gold.
- Dovish Overtones: Focus on trade risks or disinflation could weaken the USD and boost equities.
3. U.S. Inflation: CPI and Beyond
Wednesday’s Consumer Price Index (CPI) release will offer a direct reading on inflation trends. A notable upside surprise might spark talk of the Fed standing pat on rates, while soft inflation could bolster expectations of additional easing.
4. UK Data and BRC Retail Sales
The British Retail Consortium (BRC) Retail Sales Monitor is projected to surge to 3.1% YoY. Strong data could boost GBP, while a miss might add pressure amid recent BoE rate cuts.
5. Eurozone Growth Snapshot
On Friday, the Eurozone publishes Q4 GDP and Employment Change figures. Strong data could support the EUR, but any miss risks deepening euro-area malaise amid trade tensions.
6. U.S. Retail Sales on Friday
Retail sales data for January will be critical. A strong print could boost confidence in U.S. growth and the dollar, while a weak number may reignite recession fears.
Conclusion
The interplay between trade diplomacy and monetary policy will dominate markets this week, with Powell’s testimony and U.S. inflation numbers as critical catalysts. For traders, it’s a week to remain agile as political developments and economic data drive sharp market moves.
