Eyes on NVIDIA

MACRO FRAME

December’s 0.4% monthly core PCE print highlights that price pressures remain sticky on a near-term basis, reinforcing the case for a patient Federal Reserve, while uncertainty over US trade policy is likely to cloud certainty for US business and weigh on sentiment.

STOCK INDEX FUTURES

Equity index futures are higher ahead of NVIDIA’s quarterly results due after the bell. The company makes up 8% of the S&P 500’s weighting, meaning its results are likely to materially shift market risk appetite and price direction for the index. All three major indexes rose on Tuesday as investors rotated back into tech after AI start-up Anthropic unveiled new tools for its large-language model Claude, which gave shares in software developers a lift. President Trump’s State of the Union speech address did not signal that tariff levels will be changed on other countries after the SCOTUS struck down IEEPA measures last week.

Watch point: With existing trade deals in limbo and recent data supporting a pause from the Fed until the summer, focus will center around the Trump administration’s response to last week’s tariff ruling.

CURRENCY FUTURES

US DOLLAR: The USD Index is little changed as traders largely sit on the sidelines ahead of NVIDIA’s quarterly results due in the afternoon, which could significantly alter market sentiment. The dollar index is hovering near 97.90, roughly unchanged from Tuesday. President Trump offered no indication of altering his tariff policies in his State of the Union address. Interest rate expectations out of the Fed are largely unchanged, with markets pricing a summer cut and another by year-end. Focus also remains on tensions between the US and Iran ahead of expected talks on Thursday.

From a macro standpoint, resilient domestic demand and persistent services inflation continue to provide modest support to the dollar, though tariff-related uncertainty is likely to provide headwinds. With markets still pricing easing later in the year rather than imminently, DXY is likely to remain rangebound.

Watch point: Clarity on the scope and durability of new US tariff measures will be critical, as sustained trade escalation could reintroduce scrutiny regarding dollar safe-haven demand, as policy confusion is likely to remain.

EURO: The euro edged higher against the dollar to $1.1784 ahead of inflation data Friday, which will be the highlight of the week for the economic calendar in Europe. With European Central Bank policy expected to remain on hold for the rest of the year, dollar dynamics will play an outsized role in price direction.

Uncertainty still dominates sentiment after the Supreme Court ruling against US tariff measures on Friday. The EU’s Trade Commissioner, Maroš Šefčovič, engaged with US officials over future trade talks, while debate continues in Brussels over the timing of legislation tied to the bloc’s side of the agreement.

Watch point: Upcoming euro-area inflation data is likely to reinforce the ECB’s patient stance, while any downside surprise may revive rate-differential support for the dollar and pressure EUR/USD lower.

BRITISH POUND: The Sterling is higher against the dollar to $1.3512 as traders assess interest-rate divergences and political developments in the UK. Bank of England Governor Andrew Bailey said it remains possible he could support another rate cut at the March 19 meeting, though he emphasized that the decision is “a genuinely open question” pending further evidence that underlying inflation pressures are easing. Bailey has been the swing vote on in recent meetings, backing a cut in December before shifting to hold in February, while the remaining eight members remain split between easing and steady policy.

BoE Chief Economist Huw Pill struck a more cautious tone on Tuesday, warning he is not convinced inflation will sustainably return to 2% if policy becomes less restrictive, suggesting continued resistance to near-term cuts. At the more dovish end, Alan Taylor argued rates should move toward neutral and could fall below 3% if the UK economy slips into recession.

Labor market dynamics remain central to the policy debate. Bailey noted early signs of softening but questioned whether this will feed through into wage expectations. The unemployment rate rose to 5.2% in October–December and is expected by the BoE to peak near 5.25% in the second half of 2026.

Markets trimmed expectations for a March cut following policymakers’ testimony, with pricing falling to roughly 71% from 75%, as concerns over persistent wage pressures and the need for clearer evidence of declining core inflation temper the case for immediate easing.

Watch point: A March rate cut is increasingly in consideration given disinflationary trends, though still-firm services inflation could present a hurdle to further easing.

JAPANESE YEN: The yen weakened to 156.68, a two-week low, as speculation over the Bank of Japan’s policy trajectory weighed on the currency. Japan’s government nominated two pro-stimulus advocates to the central bank’s board, reinforcing Prime Minister Takaichi’s preference for a cautious approach to further rate hikes. Over the weekend, reports indicated that Takaichi conveyed reservations about additional tightening to BoJ Governor Kazuo Ueda, fueling concerns about potential political pressure on the central bank. Markets interpreted the development as a sign of possible friction between the government and the BoJ, dampening expectations for near-term tightening. Money markets continue to price a potential hike by June, with July fully priced in, while January’s softer inflation print had limited impact on rate expectations.

Watch point: Improving sentiment toward Japan’s growth outlook should lend near-term support to the yen, though concerns over expanded fiscal spending may act as a headwind to further appreciation.

AUSTRALIAN DOLLAR: The Aussie rose to $0.7089 following a hotter-than-expected inflation print, which reinforced market expectations of another rate hike from the Reserve Bank of Australia. CPI data for January revealed that prices rose 0.4% on the month, maintaining a yearly pace of 3.8%. The key trimmed mean measure of core inflation rose 0.3% and the annual pace picked up to 3.4%, topping forecasts and the highest reading since the third quarter of 2024.

Money markets currently price roughly a 80% probability of a 25 bps rate hike in May, up from 70% on Tuesday before the release. Meanwhile, June and August are also favorable to a hike. The combination of resilient labor conditions, elevated price pressures, and elevated wage growth keeps the Reserve Bank of Australia biased toward further tightening.

Watch point: Wednesday’s data reinforces that price pressures in Australia remain elevated. Wage figures, capacity utilization, PMI readings, and other signals on economic momentum will dictate market sentiment over future timing expectations.

INTEREST RATE MARKET FUTURES

Treasury yields edged higher across the curve, with the 10-year note rose to 4.05%, though remained near three-week lows touched earlier in the week. Uncertainty over the administration’s next steps regarding trade has clouded market outlook outlook, dampening risk sentiment and supporting bonds. Market-priced odds remain favorable to a cut July, though the meeting is no longer fully priced in by money markets. Odds for a cut at June’s meeting have fallen to around 50%, while markets price 53 bps of total easing by year-end, down from 56 bps last week.

Traders have focused on speeches from several Fed Governors for signals on policy. Recently, Fed Governor Waller said he has recalibrated the case he made for rate cuts at the Fed’s January meeting. Waller said he still believes inflation, stripped of tariffs, is running close to the Fed’s 2% target, but that it would take a clear deterioration in the job market to justify a rate cut. The change in tone marks a significant shift after he dissented multiple times in favor of easier policy. Waller noted that if February’s jobs numbers confirm a stable labor market, holding rates steady would be appropriate.

Watch point: With labor data pointing to continued stability and inflation remaining sticky, even as the year-over-year pace eased slightly, a summer rate cut remains the base case rather than an imminent move.

The spread between the two- and 10-year yields is 57.50 bps, while the two-year yield, which reflects short-term interest rate expectations, is 3.479%.

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