Comment: The week in markets

Nikos Tzabouras, Senior Financial Editorial Writer at Tradu on the key financial events happening this week (13-17^th January)

“The UK CPI update is being closely watched amid heightened negativity surrounding the UK economy. With inflation stubbornly above the 2% target, another elevated reading would strengthen the case for cautious easing by the Bank of England (BoE). However, this may not be enough to provide a lift for the Pound. Risks of stagflation are increasing as the UK economy struggles, and businesses remain critical of the new government’s budget, which raises costs and borrowing as yields continue to surge.

“In the US, CPI figures will guide policymaking as the Federal Reserve prepares for a pause and signals a much shallower easing path this year. The disinflation process has stalled, and Trump’s policies are set to exacerbate price pressures, as the economy and labour market remain strong. Persistent inflation would validate the Fed’s cautious stance and underpin USD strength.

“The US Dollar asserts its dominance over major peers, with more gains on the horizon thanks to favourable monetary policy dynamics. As disinflation stalls and the jobs report came in strong, the Fed is set for a cautious 2025. Another hot CPI print on Wednesday could undermine any rate cuts and may even have markets eyeing rate hikes instead.

“EURUSD stands as one of the most vulnerable pairs, with parity within reach as the ECB prepares to ease further to support a fragile economy. 

“GBPUSD is also primed for more losses, weighed down by UK gloom and growing stagflation risks, which don’t allow the pound to find solace in the BoE’s rate cut apprehension.

“US Big Banks dominate the earnings calendar, with JP Morgan, Citi, Goldman Sachs, and other major players set to report. Financials were among the top-performing sectors in the S&P 500 in 2024, and the sector could be poised for another strong year, as banks continue to benefit from Trump’s tax cuts and deregulation agenda.

“A slew of data releases is expected from China, with GDP in particular focus as the country contends with economic challenges and the risk of further headwinds from Trump’s tariff threats. Authorities have introduced several fiscal and monetary measures aimed at supporting the economy and stimulating weak domestic consumption. Markets are now awaiting the latest figures to assess whether these measures are having an impact or if more aggressive stimulus will be necessary. Still, Beijing faces the difficult balancing act of bolstering the economy while keeping the currency stable, which remains near record lows against the US Dollar.

“The Bank of Korea will announce its latest policy decision, with further easing anticipated this year to support the slowing economy amid political uncertainty and the risk of trade wars. However, officials may opt to remain on hold this time, following two consecutive rate cuts. The Korean Won depreciated nearly 15% against the US Dollar in 2024, and monetary policy dynamics could drive further weakness.”