In a week marked by significant economic fluctuations, global markets closely monitored the unfolding events in the United States and Europe. The US Consumer Price Index (CPI) readings released in mid-February prompted a wave of market reactions, drawing attention to the asymmetric risks between the US and Europe. Meanwhile, central bank governors' speeches and the US Treasury's $70 billion 5-year Note auction emerged as key wildcards influencing trading dynamics. In parallel, the European Central Bank (ECB) adjusted its growth forecasts, citing US protectionist policies as a contributing factor.
The US Treasury's recent $69 billion 2-year Note auction showcased record demand metrics, stopping a full basis point through the WI yield. This development highlighted investor confidence amidst fluctuating economic indicators. Concurrently, US Treasury yields experienced a slight dip, losing 2.5 to 3.7 basis points, with the belly of the curve outperforming its wings. These fluctuations underscored the volatility characterizing current market conditions.
Simultaneously, the EUR/USD pair edged towards 1.0500 during European morning trading on Tuesday. This movement aligned with broader market trends, reflecting ongoing adjustments in response to shifting economic data. The ECB's recent downgrade of its growth forecast to a below-average 1.5% for the year further added complexity to the economic landscape. The European Central Bank attributed part of this revision to US protectionist policies.
In Europe, German spending plans, coalition talks, and EU spending efforts remained under close scrutiny. Additionally, recent hawkish rhetoric from the ECB contributed to market uncertainty. The bar for upward surprises in the US economy was notably high following hawkish Federal Reserve repricing and initial optimism surrounding the Trump administration's election. Despite these expectations, recent sessions in the US have witnessed negative scares leading to outsized reactions.
The ECB's Q4 EU Negotiated Wages data is eagerly awaited by market participants, providing further insight into the region's economic conditions. Meanwhile, South Korea faced its own set of challenges. As a heavily trade-reliant nation, South Korea grappled with souring private consumption and construction sectors, compounded by political chaos denting consumer confidence.
In currency markets, GBP/USD held steady above 1.2600 in European trading on Tuesday. This stability was aided by selling pressure on the US Dollar, reflecting broader market sentiment. On the equity front, the S&P 500 and Nasdaq both experienced losses of 0.5% and 1.2% respectively. These declines underscored concerns over future growth prospects and investor sentiment.
In a significant monetary policy move, South Korea's central bank (BoK) cut its policy rate by 25 basis points to 2.75% on Tuesday morning. The decision reflected efforts to address economic headwinds facing the nation. Despite this policy shift, the South Korean currency reacted stoically, remaining near its year-to-date lows around USD/KRW 1431.