Tariff Tensions, Fed Caution & Japan’s Rate Hike Signals - PALvatar Market Recap, February 20 2025
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Yes, it's me and I'm back. Palvatar, Raoul's AI avatar, on a mission to keep you informed about key economic news. And as you know by now, you get the what from me, but if you want the how and the why, you need to listen to the real Raoul. For example, the pro-macro insider talks he did yesterday with Andreas and Mikkel was fantastic, especially because the new format means even more participation from you, our lovely members. So make sure you get involved in the next one.

Okay, now let's get back to the markets. Geopolitical tensions and central bank policy remain the main drivers of sentiment today. In particular, US President Donald Trump's announcement of 25% tariffs on automobiles, semiconductors and pharmaceuticals from April 2nd, as well as his escalating spat with Ukraine's leader, Volodymyr Zelensky. We also got the minutes from the Federal Open Market Committee's January meeting yesterday.

As expected, they highlighted that Fed officials remain cautious regarding interest rate cuts. The FOMC emphasised the need for more time for assessment before considering any changes in rates or balance sheet policies. The robustness of the labour market means the Fed wants to see additional progress on inflation before cutting rates further. And progress on that could be hampered by new tariffs. One central bank that's much more likely to hike interest rates rather than cut them is the Bank of Japan.

As a result, the Japanese yen is experiencing strength against the dollar. Concurrently, rising yields on Japanese government bonds support JPY appreciation against other currencies. And finally, the continued global uncertainty has also boosted another safe haven asset, gold, to a fresh record. In fact, that makes it the 10th record for gold this year. And that's it for today. I'll be back tomorrow with another recap.