Federal Reserve's Daly: Monetary Policy Needs to Remain Restrictive

Remarks of Officials

Summary:

On February 18, Mary Daly, President of the Federal Reserve Bank of San Francisco, stated that monetary policy needs to remain restrictive until further progress is made on inflation.

On February 18, Mary Daly, President of the Federal Reserve Bank of San Francisco, delivered a speech, the key points of which are summarized below:

The economy remains robust. She noted that GDP growth is stable, and the labor market continues to demonstrate strength, with few immediate concerns. The Federal Reserve maintained the target range for the federal funds rate at 4.25%-4.5% last month, following three consecutive rate cuts totaling 100 basis points since September of the previous year. Recently, several Federal Reserve officials have indicated they are not in a hurry to further lower interest rates, as they await additional economic data and assess the impact of the Trump administration's policies.

Inflation is gradually declining, albeit with some fluctuations. Data revealed that the core Consumer Price Index (CPI), excluding volatile food and energy prices, increased by 3.3% in January, exceeding economists' expectations. While a range of household expenditures, including groceries, gasoline, and housing, have generally increased, further improvements in inflation are anticipated as interest rates continue to exert downward pressure on the economy.

The labor market is robust and no longer exhibits signs of overheating, with the 4% unemployment rate remaining sustainable over the long term. However, a slowdown in the labor market could lead to an increase in unemployment as businesses adjust not only job vacancies but also actual positions.

Meanwhile, the economic impact of Trump's policies is multifaceted, presenting both positive and negative aspects. Specifically, these policies may either stimulate or restrain economic growth, labor supply, and inflation through various mechanisms and magnitudes. Monetary policy should remain restrictive, exerting downward pressure on inflation by aligning economic demand with existing supply. The Federal Reserve's policy needs to remain restrictive until further progress is made on inflation, which is expected to continue declining over time.

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Warren Takunda

Stocks

European shares were flat at the open on Wednesday after closing at a record high in the previous session as traders assessed disagreement between the US and Europe over how to end the war in Ukraine and a spike in UK inflation.

The pan-regional Stoxx 600 index barely moved the needle at 557.10 after closing at 557.96 on Tuesday. Most major bourses were in a similar position with the exception of Germany’s DAX, which posted a 0.2% rise.

Eyes were on the spat following the meeting between US and Russian officials in Saudi Arabia on Tuesday to discuss a way to settle the war – at the exclusion of Ukraine itself and Europe.

US Secretary of State Marco Rubio and his Russia counterpart Sergei Lavrov agreed to create a working group to take “peace” talks forward and also look at deepening economic and diplomatic ties between their nations. Meanwhile, European nations are scrambling to formulate a unified response to support Ukraine’s claim for a return of all territory seized during the conflict that started in 2022.

In economic news, inflation in the UK rose to 3% in January, above expectations of 2.8%. Core inflation, excluding energy, food, alcohol and tobacco prices, hit 3.7%, up from 3.2% in the previous month and the highest rate since April 2024.

“Despite this hotter-than-expected print, markets are still banking on two rate cuts from the Bank of England this year, with the odds of those cuts barely budging after today,” said Hargreaves Lansdown analyst Matt Britzman.

“Policymakers where already expecting higher energy prices and a jump in airfares, and there wasn’t anything unexpected to add into the mix, but the rise was sharper than hoped and adds to the risk that rate cuts come under pressure later in the year.”

In another heavy day of corporate news, shares in Philips fell almost 7% after annual results.

Rheinmetall continued its run as the German arms maker benefited from talk of higher defence spending amid the Ukraine crisis.

Glencore was lower after the miner and commodities trader posted a fall in annual profits but still pledged to return $2bn to shareholders including a $1bn share buyback.

Source: Sharecast

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ONS

Data Interpretation

On February 19, 2025, the ONS released its latest inflation report, revealing the following key data:

UK CPI Up 3.0% YoY in January (vs. 2.5% prior), Down 0.1% MoM (vs. +0.3% prior);

Core CPI Rises 3.7% YoY in January (vs. 3.0% prior), Falls 0.4% MoM (vs. +0.3% prior).

The report showed that the CPI rose by 3.0% over the 12 months to January 2025, up from 2.5% in the 12 months to December 2024. On a monthly basis, CPI fell by 0.1% in January 2025, compared with a 0.6% fall in January 2024. The annual inflation rate in January reached its highest level since March, complicating the BoE's plans to gradually cut interest rates amid a weak economic outlook.

On a disaggregated level, the introduction of VAT on private school fees at the beginning of the year contributed to the rise in the 12-month inflation rate. Education costs increased by 2.4% in January, compared to no change in the same period in 2024. Fuel prices also played a role in driving up overall inflation, with retail gasoline prices rising by 0.8% in January, compared to a 2.0% decline in the same period last year. The increase in airfare prices, which fell by 19% MoM in January (compared to a 38.9% decline in January 2024), was one of the reasons for the weaker-than-expected inflation in December 2024. These changes in education and airfare prices led to an increase in the services inflation rate from 4.4% to 5.0%, which was below market expectations of 5.1% and the BoE's forecast of 5.2%.

Overall, the inflation rate has risen further above the BoE's 2% target, indicating that the central bank will face greater difficulty in lowering interest rates to boost an economy that grew by just 0.1% in the final quarter of 2024. In its latest meeting in early February, the BoE cut the benchmark interest rate to 4.5%, adopting a "gradual and cautious" approach to future rate cuts.

UK January CPI Report

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Michelle

Economic

Forex

The USD/CAD pair trades subduedly below 1.4200 in Wednesday’s European session. The Loonie pair is slightly down as the US Dollar (USD) ticks lower ahead of the Federal Open Market Committee (FOMC) minutes for the January policy meeting, which will be published at 19:00 GMT. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, wobbles around 107.00.

Investors will pay close attention to the FOMC minutes to get cues about the monetary policy outlook. Meanwhile, Fed officials have been guiding a restrictive monetary policy stance until they see inflationary pressures resuming to their journey on the 2% path.

In the January meeting, the Fed left interest rates steady in the range of 4.25%-4.50% after reducing them by 100 basis points (bps) in the last three policy meetings of 2024.

Globally, the market sentiment is slightly favorable for risk-perceived assets even though fears of United States (US) President Donald Trump have renewed. On Tuesday, Trump threatened to impose 25% tariffs on all imports of automobiles, semiconductors, and pharmaceuticals. He didn’t provide any timeline about when they get executed to offer some time to local manufacturers to pace up operating capacities.

Meanwhile, the Canadian Dollar (CAD) is broadly underperforming its peers even though inflationary pressures accelerated in January expectedly. On year, the Consumer Price Index (CPI) rose by 1.9% faster than 1.8% growth in December. Month-on-month inflation grew by 0.1% after deflating by 0.4% last month.

Hot Canadian CPI data is unlikely to restrict the Bank of Canada (BoC) from easing the monetary policy further. Despite an increase in inflation, it is still below the central bank’s target of 2%.

Source: FXSTREET

To stay updated on all economic events of today, please check out our Economic calendar

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Warren Takunda

Stocks

Global stocks were steady on Wednesday, with European and U.S. shares at record highs, as traders cautiously shrugged off U.S President Donald Trump's latest tariff threats on auto, semiconductor and pharmaceutical imports.

Since Trump's inauguration four weeks ago, he has imposed a 10% tariff on all imports from China, on top of existing levies. He has also announced, and delayed for a month, 25% tariffs on goods from Mexico and non-energy imports from Canada.

Trump told reporters on Tuesday that sectoral tariffs on pharmaceuticals and semiconductor chips would start at "25% or higher", rising substantially over the course of a year. He intends to impose similar tariffs on autos as soon as April 2.

But the market reaction to Trump's threats was muted as investors increasingly see them as bargaining tools, although the U.S. dollar was on the front foot as geopolitical worries, including tense Russia-Ukraine negotiations boosted safe-haven flows.

"I think investors assume that deals will be done and that tariffs will be delayed and reduced," said Ben Bennett, Asia-Pacific investment strategist at Legal & General Investment Management in Hong Kong.

"I’m worried that the disruption and uncertainty caused by such headlines is underestimated. At the margin, this could delay business investment and hiring decisions... but that’s not how most investors are thinking it seems."

European futures pointed to a muted open after the benchmark stock index closed at a record high on Tuesday, taking its 2025 gains to 10%, far outperforming the S&P 500 and the Nasdaq.

UK stocks futures were little changed ahead of inflation data that will likely highlight why the Bank of England has been has been cautious about cutting interest rates despite a weak overall economy.

In Asia, the focus has been on Chinese tech stocks, which have been on a tear recently as the emergence of AI startup DeepSeek and a meeting between Xi Jinping and business leaders in the sector lifted sentiment.

"Green shoots are emerging in China’s economy and DeepSeek is injecting a shot of adrenaline into the sector," said Thomas Rupf, co-head Singapore and CIO Asia at VP Bank.

"While trade risks persist, tech optimism remains strong as the prospect of low-cost AI applications drives a reassessment of growth potential."

Hong Kong's Hang Seng Index fell 0.4% as investors pocketed some profits. The index has risen 14% so far in 2025, jostling with Germany's DAX index for best-performing market in the world.

Hang Seng Tech stocks has far outperformed tech-heavy Nasdaq since late September when China unleashed stimulus measures

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The New Zealand dollar was 0.3% higher at $0.5722 after the central bank slashed interest rates by 50 basis points to 3.75% as expected but hinted its aggressive cuts were set to slow.

The Australian dollar eased 0.11% to $0.6347 a day after the central bank delivered its first rate cut since 2020, but cautioned about the prospects for further easing.

Overnight, the U.S. benchmark S&P 500 <.SPX > squeaked past its previous record closing high as all three Wall Street indexes seesawed between gains and losses for much of the session before rising in the closing minutes.

European leaders vowed to step up support for Ukraine as the U.S. and Russia held bilateral talks on the war this week. Investors also hope this weekend's German election will lead to economic stimulus.

Minutes from the U.S. Fed's January meeting, when the central bank held borrowing costs at 4.25% to 4.5%, are due later on Wednesday. That follows hawkish comments from Fed Chair Jerome Powell in testimony to Congress last week and hot consumer price data.

Brent crude oil rose 0.28% to $76.05 a barrel as traders awaited the outcome of the U.S.-Russia talks in Riyadh.

Spot gold eased a bit to $2,932 an ounce, after hitting a record high last week on safe haven demand.

Source: Reuters

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Glendon

Economic

Forex

EUR/USD started a decent upward move above the 1.0460 resistance. USD/JPY declined below 153.00 and is currently consolidating losses.

Important Takeaways for EUR/USD and USD/JPY Analysis Today

The Euro found support and started a recovery wave above the 1.0400 resistance zone.

There is a connecting bearish trend line forming with resistance at 1.0460 on the hourly chart of EUR/USD at FXOpen.

USD/JPY is trading in a bearish zone below the 153.00 and 152.50 levels.

There is a short-term rising channel forming with support near 151.60 on the hourly chart at FXOpen.

EUR/USD Technical Analysis

On the hourly chart of EUR/USD at FXOpen, the pair started a fresh increase from the 1.0290 zone. The Euro climbed above the 1.0400 resistance zone against the US Dollar.

The pair even settled above the 1.0450 resistance and the 50-hour simple moving average. Finally, it tested the 1.0515 resistance. A high is formed near 1.0514 and the pair is now consolidating gains. There was a minor decline below the 23.6% Fib retracement level of the upward move from the 1.0292 swing low to the 1.0514 high.

Immediate support is near the 1.0445 level. The next major support is at 1.0400 and the 50% Fib retracement level of the upward move from the 1.0292 swing low to the 1.0514 high.

If there is a downside break below 1.0400, the pair could drop toward the 1.0375 support. The main support on the EUR/USD chart is near 1.0290, below which the pair could start a major decline.

On the upside, the pair is now facing resistance near 1.0460. There is also a connecting bearish trend line forming with resistance at 1.0460. The next major resistance is near the 1.0515 level. An upside break above 1.0515 could set the pace for another increase. In the stated case, the pair might rise toward 1.0550.

USD/JPY Technical Analysis

On the hourly chart of USD/JPY at FXOpen, the pair started a steady decline from well above the 154.00 zone. The US Dollar gained bearish momentum below the 153.00 support against the Japanese Yen.

The pair even settled below the 152.50 level and the 50-hour simple moving average. There was a spike below 151.50 and the pair traded as low as 151.23. It is now correcting losses and trading above the 50-hour simple moving average.

Immediate resistance on the USD/JPY chart is near the 23.6% Fib retracement level of the recent decline from the 154.80 swing high to the 151.23 low at 152.05.

The first major resistance is near the 153.00 zone and the 50% Fib retracement level of the recent decline from the 154.80 swing high to the 151.23 low. If there is a close above the 153.00 level and the hourly RSI moves above 60, the pair could rise toward 153.95.

The next major resistance is near 154.80, above which the pair could test 155.50 in the coming days. On the downside, the first major support is near 151.60. There is also a short-term rising channel forming with support near 151.60.

The next major support is near the 151.20 level. If there is a close below 151.20, the pair could decline steadily. In the stated case, the pair might drop toward the 150.00 support.

Source: ACTIONFOREX

To stay updated on all economic events of today, please check out our Economic calendar

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Warren Takunda

Stocks

Asia stocks were mixed Wednesday, as Chinese technology stocks faltered after a short-term rally.

The Hang Seng Index fell 0.27% to 22,915.70, while the Shanghai Composite was up 0.81% to 3,351.54. Japan’s Nikkei 225 slipped 0.27% to 39,164.61, following U.S. President Donald Trump’s threat to impose a 25% tariff on car imports that if implemented would adversely impact Japan’s economy.

Meanwhile, South Korea’s KOSPI gained 1.7% to 2,671.52. Australia’s S&P/ASX 200 was down 0.73% to 8,419.20.

China’s technology stocks slumped Wednesday after a brief bull run earlier in the week. Alibaba’s Hong Kong-traded stock fell 1.58%, while search engine giant Baidu fell 2.33% after it reported a 2% drop in revenue for its fourth quarter compared to a year earlier as artificial intelligence rivalry heats up in China.

Chinese video games firm Tencent saw its stock slip 1.37% while online services firm Meituan declined 3.24%.

“Hong Kong and mainland China led the sell-off, deflating some of the air from the risk-on balloon that had been floating Asia’s market rebound,” said Stephen Innes, managing partner of SPI Asset Management.

“Japanese stocks followed suit, with automakers Toyota and Honda taking a hit after Trump lobbed fresh threats — this time targeting autos, semiconductors, and pharmaceuticals with potential 25% tariffs,” he added.

The decline in Chinese technology stocks came even as U.S. stocks crept to a record as the S&P 500 nudged higher on Tuesday.

The main measure of Wall Street’s health rose 0.2% to finish just above its all-time closing high set last month.

The Dow Jones Industrial Average added 10 points, or less than 0.1%, while the Nasdaq composite rose 0.1%.

In energy trading, benchmark U.S. crude added 43 cents to $72.26 a barrel. Brent crude, the international standard, rose 40 cents to $76.24 a barrel.

In currency trading, the U.S. dollar weakened to 151.71 Japanese yen from 152.01 yen. The euro cost $1.0455, up from $1.0446.

Source: AP

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Federal Reserve's Daly: Monetary Policy Needs to Remain Restrictive

Europe Open: Shares Flat as Traders Eye Ukraine Tensions, UK CPI Hot Print

Source: Sharecast

UK CPI Soars to 10-Month High in January; Central Bank Wary of Rate Cuts

USD/CAD Trades With Caution as Fomc Minutes Take Centre Stage

Source: FXSTREET

Stocks Find Footing, Dollar Firms as Traders Weigh Trump's Tariff Vows

KIWI CLIPPED

Source: Reuters

EUR/USD Gains Pace While USD/JPY Turns Red

Important Takeaways for EUR/USD and USD/JPY Analysis Today

EUR/USD Technical Analysis

USD/JPY Technical Analysis

Source: ACTIONFOREX

Stock Market Today: Asia Stocks Mixed as Chinese Technology Stocks Slip

Source: AP

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