Dollar Stable After Fed Holds Rates - Annual GDP The Focus Today
- Jan 30
- 3 min read
Updated: Feb 10
GBP : UK fiscal outlook the focus
The UK's fiscal situation and how it affects asset markets continue to be major topics of discussion. Chancellor Rachel Reeves wants to refocus the discussion on chances for economic expansion rather than one that focuses on onerous tax hikes for companies. This was the motivation behind yesterday's important policy announcements in Oxford. Another way to interpret these actions is as an effort to sway the Office for Budget Responsibility (OBR) in its assessment of the government's budgetary plan before its review in March.
Interestingly, the OBR continues to forecast very robust economic growth in the UK until 2030, especially for this year. Since lowering these projections would put additional pressure on the fiscal outlook, the government will probably do everything in its power to avoid doing so. However, March may require some budgetary tightening, most likely in the form of spending cuts at the end of the projection year.
EUR : GDP figures out today
The European Central Bank (ECB) meeting and the release of GDP figures make today a major day in the European economic calendar. Consumption and business investment emerged as the main sources of weakness in France's fourth-quarter GDP decrease, which was 0.1% quarter-over-quarter and worse than anticipated. It's important to remember that the possibility of trade tariffs usually discourages corporate investment; the IMF has previously examined this pattern. The focus now turns to Germany and Italy, whose GDP reports are scheduled at 9:00 GMT, and the preliminary release for the entire Eurozone at 10:00 GMT. Although risks seem to be skewed to the downside, current projections indicate that the Eurozone will grow by 0.1% on a quarterly basis.
However, the ECB's rate decision at 13:15 GMT is the day's main emphasis. It is generally anticipated that the deposit rate would be lowered by 25 basis points to 2.75%, which will increase investor interest in ECB President Christine Lagarde's press conference that follows. If markets believe the ECB will drive policy below the so-called neutral rate, there are downside risks.
According to previous market pricing, the predicted low point of this easing cycle was approximately 1.50% in early December, and this neutral rate is typically estimated to be about 2.25%. As of right now, predictions have changed to 2.06%. If this prediction comes to pass, there will be more space for short-term euro rates and the currency to fall. Eurozone analysts predict that the ECB may cut rates to 1.75% by the second quarter.
USD : Fed holds rates
Following what first seemed to be a hawkish FOMC announcement, the U.S. dollar failed to sustain its initial, moderate gains, as was noted in yesterday's Federal Open Market Committee (FOMC) review. However, the strength of the dollar and U.S. interest rates reversed as a result of Fed Chair Jay Powell's later comments at the news conference.
While investors wait for more economic data and trade tariff updates for the next significant market driver, market projections now indicate two 25 basis point rate cuts this year—one in June and another in December. In order to change perceptions of the strength of the U.S. labor market, those who support a more dovish Federal Reserve outlook will be watching for softer core PCE inflation data tomorrow (possibly as low as 0.1% month-over-month) and expecting significant downward revisions to benchmark payroll figures next month.
In other news, Nvidia is still having trouble recovering from Monday's severe sell-off that followed the DeepSeek revelation. According to market perception, DeepSeek's innovations may increase productivity, but they may also present difficulties for IT and energy firms that have been essential to AI-driven profitability. S&P 500 futures have been gradually rising in early European trading after Microsoft, Tesla, and Meta reported mixed earnings results overnight.
The U.S. market will be focused on a strong fourth-quarter GDP report today, which will be mostly driven by robust consumer spending. Depending on how events with the European Central Bank play out, this might push the DXY back toward the 108.20–108.50 level and support the story of the U.S. economy's resiliency.
