Bostic Expects Two Rate Cuts in 2025, Inflation Path Uncertain
On Thursday, February 21, Atlanta Fed President Bostic stated in a speech that he anticipates the Federal Reserve will cut rates twice in 2025, although the uncertainty around this forecast is increasing. He noted that while the current Fed benchmark interest rate remains in the range of 4.25%-4.5% at a moderately restrictive level, there is still room for further rate cuts without directly hitting the "neutral rate"—the rate that maintains stable economic growth, potentially between 3%-3.5%.
Bostic supported last year's rate cut actions by the Federal Reserve, believing it appropriate to reduce the policy's restrictiveness as inflation retreats from its peak in 2022, helping to safeguard the labor market. He is confident that inflation will eventually return to the 2% target, though this process may involve fluctuations. He stated, "Although inflation remains above the target, with the labor market cooling down but remaining robust, price stability is no longer the most pressing issue."
Labor Market Remains Robust, Initial Jobless Claims Slightly Rise
According to the latest data from the U.S. Department of Labor, there was a slight increase in initial jobless claims last week, yet they remain at pre-pandemic levels, indicating a still robust labor market. As of the week ending February 15, initial jobless claims rose by 5,000 to 219,000, exceeding market expectations of 215,000. Meanwhile, continuing claims grew to 1,869,000 in the week ending February 8, roughly aligning with market expectations.
Sung Won Sohn, a professor of finance and economics at Loyola Marymount University, suggests that reduced hiring by the U.S. government could signal fiscal tightening, potentially affecting private sector hiring that relies on federal spending. Overall, initial jobless claims remain comparable to 2019 levels, supporting the Federal Reserve's stance of keeping rates unchanged until inflation returns to target. Fed policymakers are closely monitoring the economic impact of fiscal, trade, and immigration policies implemented by the Trump administration.
Dollar Index Falls Below 107, Market Focuses on Key Support Levels
On Thursday, the Dollar Index saw a significant decline, falling below the 107.00 mark and hitting a 10-week low, currently trading around 106.50. Factors contributing to the dollar's weakness include profit-taking pressure, overall weak U.S. economic data, and technical sell-offs. If the Dollar Index fails to regain the 107.00 threshold, it may continue to seek support around the 106.00 level in the short term.
Euro and Pound Perform Strongly as Market Sentiment Warms
The euro surged against the dollar yesterday, challenging the 1.0500 mark and reaching a three-day high, now trading around 1.0490. The weaker Dollar Index provided support for the euro, while strong economic data from the Eurozone further boosted market confidence. Currently, the market is attentive to the resistance level near 1.0600, with support around 1.0400.
The British pound experienced a choppy rise against the dollar yesterday, reaching a nine-week high and trading at approximately 1.2660. The pound's advance benefited from technical buying near the 1.2600 mark, while the weaker Dollar Index also supported the pound's rebound. Additionally, strong UK economic data has enhanced market confidence in the country's economic outlook. In the short term, the pound faces resistance at 1.2750 and has support around 1.2550.
Market Anticipates Upcoming Economic Data Releases
Today, the market will focus on several important economic data releases, including the UK's January retail sales monthly rate after seasonal adjustment, the Eurozone's February SPGI manufacturing PMI preliminary values, the UK's February SPGI services PMI preliminary values, Canada's December retail sales monthly rate, the U.S. February SPGI manufacturing PMI preliminary values, the U.S. January existing home sales annual total, and the U.S. February University of Michigan consumer sentiment index final value. These data may further influence market sentiment and the movement of major currencies.
Summary
Fed official Bostic's expectation of rate cuts eases market concerns about tightening policies, though uncertainties remain. The labor market continues to be robust, and the slight increase in initial jobless claims did not significantly impact the market. The Dollar Index fell below the 107 mark, boosting the euro and pound, with the market watching closely for the dollar's next move. Meanwhile, investors are keenly awaiting the upcoming economic data releases to gauge short-term trends in global markets.
