Forexlive Americas FX news wrap 5 Feb: Yields move lower helped by lower ISM services

• US stocks shake off the early weakness
• Chip Stock Showdown: AMD, Nvidia & Broadcom Analysis
• US crude oil futures settled at $71.03
• US dollar at a one-week low as the trade fears fade
• Fed’s Goolsbee: Ignoring supply chain impacts, like tariffs, would be a mistake
• Tariff front-running is likely to play havoc with Canadian economic data
• China initiates WTO dispute complaint regarding US tariff measures
• S&P 500 erases loses, turns positive despite a big decline at Alphabet
• US expected to roll out Ukraine peace plan next week
• Japan-US summit statement to call for ‘golden age’ of ties
• ECB’s Centeno: Undershooting 2% inflation is a risk if investment doesn’t improve
• EIA weekly crude oil inventories +8664K vs +1962K expected
• Fed’s Barkin: Does not see rate hike as ‘close’ to the base case
• US January ISM services 52.8 vs 54.3 expected
• US S&P Global final January services PMI 52.9 vs 52.8 prelim
• Canada S&P Global January services PMI 49.0 vs 48.2 prior
• Canada and US to hold economic summit on Feb 7
• More from Fed’s Barkin: There is a wide range of outcomes from tariffs
• Fed’s Barkin: Not hearing CEOs talk about recession
• ECB’s Lane: Disinflation process remains well on track
• Treasury refunding announcement shows most auction sizes unchanged for several quarters
• Canada December trade balace +0.71B vs +0.75B expected
• US international trade deficit for December $-98.4B vs $-96.6 billion
• US January ADP employment +183K vs +150K expected
• In the kickstart video for Feb 5 the USD is lower as US traders enter the fray for the day
• Fed’s Barkin: Baseline data has been favourable
• Forexlive European FX news wrap: The USD extends decline as trade war fears dissipate
• US MBA mortgage applications w.e. 31 January +2.2% vs -2.0% prior

The USD is lower vs all the major currencies vs the USD. The biggest mover was the USDJPY with the greenback moving down by -1.07%. The move lower was helped by earlier comments from the BOJ Policy Head Kazuhiro Masaki who emphasized that underlying inflation in Japan is gradually moving toward the 2% target, though it remains below that level for now. He attributed recent price increases primarily to cost-push factors, such as higher import costs driven by a weak yen, but expects these pressures to ease over time. While services prices are rising moderately, the BOJ plans to maintain accommodative monetary conditions to support economic activity. However, Masaki noted that the BOJ is prepared to raise interest rates further if underlying inflation accelerates as projected. That helped to send the JPY higher/USD lower.

The USDJPY tested and then broke below the 200 and 100 day MAs at 152.77 and 152.42, but price has bounced back to the higher 200 day MA. That MA at 152.77 is the key barometer going into the new trading day.

The USDCAD was little changed (-0.06%) after a move below a lower swing area between 1.42905 and 1.4304 failed.

Below is a summary of the changes of the major currency pairs vs the USD.

Fedspeak in the US session had Fed’s Barkin and Goolsbee speaking. Richmond Fed President Thomas Barkin expressed optimism about the current state of the U.S. economy, noting that its baseline is “really healthy” and that CEOs are not discussing the likelihood of a recession. He also indicated that he does not see a rate hike as a likely scenario, pushing back against the idea that one is near the Federal Reserve’s base case.

Barkin highlighted the significant uncertainties surrounding tariffs, identifying three key areas: the level and scope of tariffs on various countries, the responses from other nations and companies, and the ultimate impact on consumers.

Drawing from the 2018–2019 tariff experience, he pointed out that those tariffs added an estimated 30–40 basis points to inflation in an era of low inflation. Despite this, consumer spending and hiring remained strong, though large businesses cut back on investment. He emphasized that the range of outcomes from tariffs remains wide and that tariffs are unlikely to lead to significant reshoring of U.S. manufacturing in the near term.

On globalization, Barkin noted that it has been disinflationary but expressed concern that de-globalization could pose a headwind to U.S. growth. He expects inflation numbers to decline “significantly” over the next 12 months, particularly in the first quarter. Barkin also underscored the importance of robust security protocols, sharing that the Federal Reserve is frequently targeted by cyberattacks.

Overall, Barkin’s comments reflect cautious optimism about economic resilience, tempered by concerns over inflation, trade policy, and broader geopolitical shifts.

Fed’s Austan Goolsbee emphasized the importance of considering supply chain impacts, such as tariffs, when assessing inflation, warning that ignoring these factors would be a mistake. He highlighted that if inflation rises or progress toward the 2% goal stalls, the Federal Reserve will need to determine whether the cause is economic overheating or tariff-related pressures, as this distinction is crucial for deciding policy actions.

Goolsbee noted that inflation has been declining and is approaching the Fed’s 2% target, but the COVID-19 pandemic experience demonstrated how supply chain disruptions can materially affect price levels. He also pointed out that opinions vary on how much tariffs are passed on to consumers, suggesting that suppliers may absorb some of the costs rather than transferring them entirely to prices. These insights underline the complexity of managing inflation in a globalized and interconnected economy.

The US trade deficit was the 2nd largest deficit EVER as companies front ran the Trump tariffs (CLICK HERE).

The US January ISM Services Index came in at 52.8, below the expected 54.3 and down from the prior reading of 54.1, signaling slower growth in the services sector. Employment improved slightly to 52.3 from 51.3, indicating modest job growth in the industry. However, new orders fell sharply to 51.3 from 54.2, reflecting a notable slowdown in demand. Prices paid also declined, dropping to 60.4 from 64.4, suggesting easing inflationary pressures within the sector. These data points collectively highlight a cooling in the services economy, with mixed signals on employment and demand amid softer price pressures.

More positive data came from the ADP jobs report. The US January ADP employment report showed an increase of 183K jobs, exceeding the expected 150K and reflecting a revision of the prior month’s figure from +122K to +176K. The gains were driven by the service-providing sector, which added 190K jobs, while the goods-producing sector lost 6K jobs. Notably, consumer-facing industries like trade, transportation, utilities, and leisure/hospitality accounted for more than half of the job growth, while business services and production lagged behind.

Pay growth for job stayers rose slightly to 4.7% (vs. 4.6% prior), while job changers saw a decline in pay growth to 6.8% (vs. 7.1% prior). ADP Chief Economist Nela Richardson highlighted a labor market dichotomy, with strong hiring in consumer industries masking weaker growth in other sectors. While this report suggests an upward bias for non-farm payrolls, its correlation with NFP remains unreliable.

US stocks traded higher, and they traded lower, but closed higher on the day (and near highs for the day):

• Dow industrial average closed up 317.24 points or 0.71% at 44873.28. The index was down -203.05 points at session lows.
• S&P index rose 23.60 points or 0.39% at 6061.48. It was down -30.82 points
• NASDAQ index rose 38.31 points or 0.19% at 19692.33. At session lows, the index was down -155.12 points
• Russell 2000 rose 26.02 points or 1.14% at 2316.23

Looking at the US debt market, yields are ending sharply lower especially out the yield curve. The new Treasury Secretary announced that the auctions would keep the same mix for now. There have been rumblings that longer dated paper would be issued.

• 2-year Yield 4.186%, -2.7 basis points
• 5-year yield 4.249%, -6.7 basis points
• 10 year yield 4.426%, -8.7 basis points
• 30 year yield 4.643%, -10.4 basis points

in other markets:

• Crude oil is down $1.56 at $71.12
• Gold reached a new all-time high at $2882.39. It is trading up $21 at $2862.29.
• Bitcoin is trading lower by about $400 at $97,386

Thank you for your support.

This article was written by Greg Michalowski at www.forexlive.com.