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Good morning from snowy, frozen Canada.

We have a four-pack of economic data releases due at the bottom of the hour:

• Initial jobless claims
• Philly Fed
• Canadian PPI
• Canadian new housing price index

There has been some hand-wringing about pricing numbers in the regional Fed manufacturing surveys but the main release to watch is initial jobless claims, which are expected at 215K from 213K prior. In the Philly Fed, expect tariff worries and front-running of possible costs to be a big skew.

Later we get weekly oil inventories, a 30-year TIPS auction and comments from the Fed’s Goolsbee at 935 pm ET and Musalem at 12:05 pm ET.

This article was written by Adam Button at www.forexlive.com.

Headlines:

• USD/JPY heavy, eyes test of 150.00 level
• Gold homes in on the $3,000 mark
• Weekly update on interest rate expectations
• BOE odds hardly changed after the UK CPI report yesterday
• ECB’s Simkus: I agree with expectations of 3 more cuts in 2025
• PBOC says will step up analysis of macro economic and financial work
• US Treasury secretary Bessent: I don’t want others to manipulate their currencies
• Germany January PPI -0.1% vs +0.6% m/m expected
• Switzerland January trade balance CHF 6.12 billion vs CHF 3.49 billion prior

Markets:

• JPY leads, USD lags on the day
• European equities higher; S&P 500 futures down 0.3%
• US 10-year yields down 2.6 bps to 4.509%
• Gold up 0.4% to $2,944.97
• WTI crude up 0.1% to $72.29
• Bitcoin up 1.2% to $97,446

There wasn’t too much action in European trading today, with the dollar settling a little lower no thanks to a potential downside break in USD/JPY.

The pair was already down to around 151.30 coming into the session before briefly nudging under the crucial 150.00 mark. Price action is still keeping just above the figure level but the downside pressure is growing and that could weigh on the dollar on a broader scale if the break runs.

There wasn’t any major headline catalyst for the move but as outlined in the linked post above, one can’t ignore the continued rise in JGB yields as a plausible factor.

Besides that, the dollar remains slightly softer in general as traders await more trade and geopolitical developments involving Trump. EUR/USD is up 0.2% to 1.0440 and GBP/USD up 0.1% to 1.2600 on the day. Despite US futures keeping lower, commodity currencies are holding their own with USD/CAD down 0.1% to 1.4215 and AUD/USD up 0.4% to 0.6370.

Overall, the moves aren’t anything to shout about but it makes for some added push and pull on the week at least.

In other markets, European stocks are looking for a minor bounce back following yesterday’s slump. Meanwhile, Treasury yields are lower and that’s not helping with the mood in USD/JPY as well.

In the commodities space, gold is off earlier highs of $2,954 but remains poised for an eighth straight week of gains. $3,000 incoming?

This article was written by Justin Low at www.forexlive.com.

• US has a strong dollar policy
• But don’t want others to manipulate their currencies
• China’s yuan is hard to value
• But on any academic model, the yuan is cheap
• Aims to tell China to rebalance their economy
• Will have first call with China counterpart tomorrow
• Revaluing gold reserves is not what I had in mind
• Haven’t seen Europe cut auto tariffs yet

This article was written by Justin Low at www.forexlive.com.

• I agree with expectations of 3 more cuts in 2025.
• The direction of travel is clear.
• Next move is clear.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

The precious metal is trading up today to record highs, seen at $2,953 at the moment. It is now poised for another week of gains and that will make it eight on the trot to start the new year. The latest gains are coming as the dollar is also slightly weaker but amid persisting geopolitical tensions and central bank buying, it’s hard to find a case against gold still.

The next target? The $3,000 mark of course. That’s the big one in terms of a psychological barrier for the precious metal.

After having touched the previous big one of $2,000 during the Covid pandemic, gold struggled to really break the shackles until last year. That’s a lengthy period of bouncing around in the last few years before finally catching fire.

Will this time be different though?

I have a feeling it might. As is the case since last year, the only argument I have against gold is purely a technical one.

The rise to where we are now has been breathtaking and really one-sided in terms of momentum. That argues for a correction of sorts but we’ve not got that whatsoever until now.

Besides that, the same conditions are all lining up for gold with major central banks still easing policy (albeit more slowly) and Trump is still doing his thing on the global stage – stirring up uncertainty and geopolitical tensions. Then, you still have major central banks – China in particular – still stocking up on gold reserves. And that’s a big plus point as well.

I wouldn’t rule out a good bout of profit taking upon hitting $3,000. But if we easily shoot past that, we might see gold touch $3,100 or $3,200 before the next real pullback.

This article was written by Justin Low at www.forexlive.com.

• Eurostoxx +0.3%
• Germany DAX +0.3%
• France CAC 40 +0.3%
• UK FTSE -0.2%
• Spain IBEX +0.5%
• Italy FTSE MIB +0.2%

This follows the setback from yesterday, which threatens the winning streak for European equities at the start of this year. Trump meddling around with the Russia-Ukraine conflict remains a cause of concern, especially after labelling Zelenskyy as a dictator yesterday. That will again continue to be something to watch in the day ahead, alongside ongoing tariff developments of course. US futures are lagging though, so that’s also something to consider with S&P 500 futures down 0.3% currently.

This article was written by Justin Low at www.forexlive.com.

• Prior -0.1%

The main decline for producer prices in January was due to energy prices, which were down 0.9%. If you strip that out, producer prices were actually seen up 0.3% compared to December last year. That comes as there were increases in prices for durable consumer goods (+0.4%) and capital goods (+0.8%). Meanwhile, the prices for intermediate goods were flat on the month.

This article was written by Justin Low at www.forexlive.com.

• Prior CHF 3.49 billion; revised to CHF 3.48 billion

The Swiss trade surplus expanded in January as exports were seen 12.7% higher while imports only increased by 0.6% on the month.

This article was written by Justin Low at www.forexlive.com.

It’s not often that you see the United States cutting military spending. I don’t think too many people had that as a baseline scenario to pay for corporate tax cuts, but it would go a long way. Trump certainly didn’t campaign on it but he may be trying to keep the hawks happy by shifting some of those military orders to the books of allies in a push for increased NATO spending.

We will see what actually comes to pass because it’s Congress that controls the spending. The cuts would be over 5 years, according to the report.

“Defense Secretary Pete Hegseth has ordered senior leaders at the
Pentagon and throughout the US military to develop plans for cutting 8
percent from the defense budget in each of the next five years,” citing a memo.

Shares of Lockheed and RTX don’t seem to be too bothered and Palantir is still trading at 100x sales.

This article was written by Adam Button at www.forexlive.com.

• Federal Reserve speakers Thursday include Kugler, Goolsbee, Musalem, Barr
• Bank of Japan Expected to Raise Rates to 0.75% in Q3, Reuters Poll Shows
• Bank of Japan Governor Ueda said did not discuss long-term rates with ishba
• Fed’s Jefferson says Fed is in “watch and wait” mode about state of government policy
• Morgan Stanley Turns More Optimistic on China Equities, Sees Structural Shift in Market
• More on Trump’s goal to abolish the IRS – source is US Commerce Secretary Howard Lutnick
• Bank of Japan Governor Ueda is meeting with Japan PM Ishiba
• AUD traders note: Reserve Bank of Australia Governor Bullock speaking on Friday local time
• Trump says a new trade deal with China is possible
• Trump speaking – repeating himself
• RBA Dep Gov Hauser: RBA policy is still restrictive
• RBA Deputy Governor Andrew Hauser is speaking now – live link
• Barclays expects BoJ to raise rates at a six-monthly pace, but risk is front loading
• Tariff talk driving bids back into the USD (USD/JPY excepted!)
• US Commerce Secretary Lutnick says Trump’s goal is to abolish the Internal Revenue Service
• PBOC sets USD/ CNY reference rate for today at 7.1712 (vs. estimate at 7.2856)
• PBOC sets one and five year loan prime rates unchanged
• Fed’s Goolsbee: Inflation has fallen but it is still too high
• US poised to reduce its diplomatic mission in China by up to 10%
• AUD marked higher after another very strong employment report from Australia
• Australia January 2025 unemployment rate 4.1% (vs. 4.1% expected)
• PBOC is expected to set the USD/CNY reference rate at 7.2856 – Reuters estimate
• USD/JPY falling away again. Meanwhile 10-year JGB yield hits highest since November 2009
• Trump repeats he’ll be announcing tariffs on cars, semiconductors, pharma
• Japan Trade Minister to go to US, to seek exemptions from tariffs on steel and automobiles
• Trump says will fill up the Strategic Petroleum Reserve fast
• Trump plans a cash splash with DOGE savings
• RBNZ Governor Orr rules out further 50bp rate cuts (unless there is an economic shock)
• Fed’s Jefferson says the Bank can take its time to consider its next monetary policy move
• EU ready to negotiate on car tariffs with Trump, trade commissioner says
• More from ECB’s Cipollone – spoke on Wednesday – video interview
• Oil – private survey of inventory shows a larger headline crude oil build than expected
• Trade ideas thread – Thursday, 20 February, insightful charts, technical analysis, ideas
• Major stock indices close higher. S&P at record levels
• Forexlive Americas FX news wrap: Trump calls Zelensky a dictator

USD/JPY
tracked more or less steadily lower during the session. Its down more
than a big figure on the session to lows just under 150.30 as I am
writing.

There
was no fresh yen-related news or data of note. We did have news that Japan’s Trade Minister, Yoji Muto, is planning a trip to the United States in March to request that the Trump administration exempt Japan from upcoming tariffs on steel and automobiles. Which hardly seems surprising.

While
USD/JPY was dropping away other FX ticked a little higher against the
USD also. That was until we had remarks from new US Commerce
Secretary Lutnick saying Trump’s goal is to abolish the internal
revenue service:

• “Think
  about it, Donald Trump announces the External Revenue Service, and
  his goal is very simple … his goal is to abolish the Internal
  Revenue Service and let all the outsiders pay”.

‘Outsiders
pay’ is Lutnick referring to Trump’s “External Revenue
Service” role to oversee tariffs and other potential foreign
revenue. Lutnick was speaking in a Fox interview.

The
comments brought out US dollar buyers, sending EUR, AUD, NZD, GBP, CAD falling against the big dollar (USD/JPY tracked sideways for a few
minutes while all this was going on, before resuming its fall).
Non-US FX has recovered, with AUD and NZD pushing to new
session highs since.

From
Australia we had the January employment report, another very strong
one, with jobs added coming in more than double the median forecast. While the
unemployment rate notched higher by 0.1 ppt labour force
participation hit its highest ever recorded, as did the number of
jobs.

Reserve
Bank of Australia Deputy Governor Andrew Hauser spoke
in an interview
with Bloomberg TV.
While most of comments were erring toward the ‘data dependence’
view on forward guidance and that inflation is still a challenge, he
did say, which I thought was very instructive, that the Bank’s
modelling prior to Tuesday’s rate cut was that inflation should
decline even if rates were held steady. A wee more dovish, or at
least less hawkish, than I thought he would be.

In
other central bank news:

• Vice
  Chair of the Board of Governors of the Federal Reserve Jefferson
  spoke, said the Fed can take its time when weighing the next monetary
  policy move;
• Bank
  of Japan Governor Ueda met with Japanese Prime Minister Ishiba –
  the two meet regularly;
• The
  People’s Bank of China lefts its 1- and 5-year Loan Prime Rates
  (LPRs) unchanged again, at 3.1% and 3.6% respectively.

We
heard from Trump a few times during the session, including he is
considering

• giving
  20% of savings from DOGE cuts as payouts to Americans
• another
  20% of savings could go toward paying down the federal debt

and

• he
  will fill up the US Strategic Petroleum Reserve (SPR) ‘fast’

and

• he’ll
  be announcing tariffs on cars, and semiconductors, and chips, and
  pharmaceuticals, drugs and pharmaceuticals, and lumber, probably, and
  some other things over the next month, or sooner

(On
this last point, Trump said all this yesterday)

This article was written by Eamonn Sheridan at www.forexlive.com.

The headline on this from earleir is here:

• US Commerce Secretary Lutnick says Trump’s goal is to abolish the Internal Revenue Service

It drove a flurry of buyers into the US dollar. The impact has since dissipated and non_USD FX is bouncing back.

Axios has more detail on Lutnick’s remarks:

• Commerce Secretary Howard Lutnick said Wednesday evening President Trump’s goal is to “abolish” the Internal Revenue Service (IRS)
• remarks on Fox News
• IRS is reportedly poised to lay off thousands of workers

Lutnick quote:

• “Think about it, Donald Trump announces the External Revenue Service, and his goal is very simple … his goal is to abolish the Internal Revenue Service and let all the outsiders pay”

“External Revenue Service” is to oversee tariffs and other potential foreign revenue.

Lutnick is no dummy, he is former chairman and CEO of Cantor Fitzgerald.

This article was written by Eamonn Sheridan at www.forexlive.com.

Earlier from Trump:

• Trump speaking – repeating himself

and this on his behalf:

• US Commerce Secretary Lutnick says Trump’s goal is to abolish the Internal Revenue Service

This article was written by Eamonn Sheridan at www.forexlive.com.