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27/01/2025 - 08:29 UTCThe US dollar fell sharply against most major currencies in the last week, with the dollar index (USDX) down by 1.79%, amidst signs that Trump would push the Federal Reserve for immediate rate cuts. Investors are closely observing the forthcoming Federal Reserve policy decision, with a widely held expectation of a rate hold.
Recent weeks have witnessed a surge in Wall Street optimism, characterized by consistent gains across major U.S. stock indices, with the US 500 reaching new record highs. This positive sentiment has been fueled by a combination of robust earnings reports and a speech delivered by Trump where he advocated for a reduction in interest rates.
Nvidia, a leading player in the artificial intelligence (AI) sector, experienced a dip in its stock price following the launch of China's DeepSeek AI program. DeepSeek, a generative AI model, has claimed to outperform competitors while being significantly more cost-effective. This development has raised concerns about potential competition for Nvidia, whose chips are widely used in AI development. Despite this setback, Nvidia's stock still ended the week higher. This suggests that investors remain optimistic about the company's long-term prospects in the rapidly growing AI market. Other major tech companies, including Microsoft, Meta, and Alphabet, are also heavily investing in AI. These companies are expected to report significant increases in capital expenditure during their upcoming earnings reports, reflecting their commitment to advancing their AI capabilities.
In the week ahead, key central banks (European Central Bank, Bank of Canada, and the Federal Reserve) will announce their interest rate decisions. Some price action is also expected upon the release of the Core PCE price index and Advanced GDP data from the U.S. Market attention will also be on crucial economic data releases, including the U.S. Richmond Manufacturing Index and CB Consumer Confidence data on Tuesday, Jobless claims and pending home sales on Thursday, and Eurozone’s CPI, Canada’s GDP and the Chicago PMI on Friday.
The EUR/USD pair posted moderate gains on Friday ending the session 0.76% higher. In the US, data from S&P Global reflected a slowdown in economic activity. The Composite PMI declined to 52.4 in January from 55.4 in December, signaling slower growth. The Manufacturing PMI, however, improved to 50.1 from 49.4 while the Services PMI dropped significantly to 52.8 from 56.8, falling short of the consensus of 56.5.
On the other hand, the Euro gained momentum due to unexpectedly positive PMI data in the Eurozone. The Composite PMI rose to 50.2 in January, marking a return to expansion after two months of contraction, defying economists’ predictions of a decline to 49.7. Germany played a significant role in this recovery, with its economy returning to expansionary territory, although France remained in contraction.
Gold prices extended their weekly gains on Friday ending the session 0.60% higher. Comments from US President Donald Trump could serve as a catalyst for further gains. However, his surprising indication that he might refrain from imposing additional tariffs on Chinese products added an element of unpredictability to market sentiment.
The market mood turned slightly negative despite Trump easing his trade policy stance toward allies and adversaries. US economic data on Friday painted a mixed picture. Trump’s rhetoric extended beyond trade, with remarks at the World Economic Forum (WEF) emphasizing his push for lower interest rates.
Oil prices edged higher on Friday but ended the week with a decline, breaking a streak of four consecutive weekly gains.
President Donald Trump announced plans to boost domestic oil production and called on OPEC to reduce crude prices, targeting a financial hit to oil-rich Russia and a potential end to the war in Ukraine.
However, Trump's strategy could face challenges from potential U.S. sanctions on major oil producers like Russia and Iran, which may exacerbate global supply constraints.
While U.S. crude inventories hit their lowest levels since March 2022, offering some bullish sentiment, concerns over oversupply and weak demand—particularly from China—continue to pressure oil prices.
The US 500 achieved a two-week winning streak despite closing lower on Friday, as investors digested corporate earnings and economic data. All three major indices ended the week in positive territory, supported by President Donald Trump’s call for immediate interest rate cuts during his address at the World Economic Forum in Davos, Switzerland.
Corporate earnings reports continued to drive market sentiment. Verizon Communications gained nearly 1% after reporting its best quarterly wireless subscriber growth in five years. American Express posted a 12% jump in fourth-quarter profits, driven by strong holiday spending, but its stock fell 1.4%.
The University of Michigan Consumer Sentiment Index fell to 71.1 in January from 74.0 in December, marking its first decline in six months. This comes ahead of this week’s Federal Reserve meeting, where the central bank is expected to maintain interest rates.
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