BoK Expected to Cut Interest Rate Next Week

Economic

Summary:

Bank of Korea Gov. Rhee Chang-yong speaks in this Feb. 18 photo. The Korean central bank is widely expected to lower its policy rate by 0.25 percentage point next week in an effort to prop up the economy, a poll showed Friday.

Bank of Korea Gov. Rhee Chang-yong speaks in this Feb. 18 photo.

The Korean central bank is widely expected to lower its policy rate by 0.25 percentage point next week in an effort to prop up the economy, a poll showed Friday.

According to a survey conducted by Yonhap Infomax, the financial news arm of Yonhap News Agency, 20 out of 21 local analysts and experts polled predicted the Bank of Korea (BOK) will cut its base rate to 2.75 percent from the current 3 percent at its next rate-setting meeting slated for Tuesday.

In January, the BOK kept its benchmark interest rate frozen in the wake of the weak local currency amid political chaos and uncertainties stemming from U.S. President Donald Trump's new administration.

The on-hold decision came on the heels of two rate cuts in the October and November meetings.

"The country is facing growing downside risks centering on weak domestic demand, while the won's further weakness seems limited, which would lead the BOK to lower the policy rate by 25 basis points," said Kim Seon-tae, an expert from KB Kookmin Bank.

Nineteen out of the 21 analysts polled anticipated the key rate to be lowered to 2.5 percent in the first half of this year.

The central bank is scheduled to present an adjusted growth forecast Tuesday. BOK Gov. Rhee Chang-yong has hinted at slashing the outlook to around 1.6 percent from its previous forecast of a 1.9 percent expansion.

Korea's potential growth rate is at 2 percent, and this year may mark the first time ever that the country's yearly growth rate falls below the level.

Source: Koreatimes

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Daily News

[Quick Facts]

1. UK January job postings increase, dispelling some gloom in the labor market

2. Japan's January inflation rate surged:

3. Bostic: Two rate cuts are expected in 2025 amidst pervasive uncertainty

4. Makhlouf: Disinflationary Trend Faces Risks

5. Bullock: Reluctant to delay rate cuts

6. Musalem: Inflation expectations warrant vigilance

[News Details]

UK January job postings increase, dispelling some gloom in the labor market

The number of job postings in the UK increased in January for the first time in seven months, indicating that the UK's labor market may be weathering the impact of increased employer tax burdens. The Bank of England is also monitoring the labor market when considering when to cut interest rates again. The expected slowdown in hiring may curb long-term inflationary pressures. REC Deputy CEO Kate Shoesmith said: "While boards across the country are having difficult discussions, today's report suggests that it is too early to be pessimistic about the overall outlook for the UK economy in 2025.

Japan's January inflation rate surged

Japan's CPI rose 4% YoY, according to figures released on Friday, the highest level since January 2023. Core CPI increased by 3.2% YoY, reaching its highest point since June 2023. "Core" inflation, which excludes fresh food and energy prices and is closely monitored by the Bank of Japan (BOJ), edged up to 2.5%.

The latest inflation figures strengthen the case for the BOJ to raise interest rates. The BOJ considered tightening rates at its January meeting, and its summary of opinions cautioned against inflation risks and a weaker yen.

Makhlouf: Disinflationary Trend Faces Risks

The disinflationary trend is at risk, with a highly uncertain outlook. The European Central Bank has cut rates five times since June of last year and is expected to lower the deposit rate to 2.5% next month. Policymakers are confident that inflation will fall to 2% this year, but they are concerned that the instability of the Eurozone economy could drag down price growth below the target.

Bostic: Two rate cuts are expected in 2025 amidst pervasive uncertainty

Atlanta Fed President Bostic stated on Thursday that the path to price stability, despite some market volatility, remains intact. Housing costs have been a significant contributor to persistent inflation, although market-based measures of rent price growth are more subdued than official inflation statistics. This suggests that the softening in market rents should eventually be reflected in inflation figures.

He supports a reduction in monetary policy restrictiveness, citing a shift in the risk balance between the dual mandate of price stability and maximum employment. While inflation has declined significantly, it remains above target, and the urgency of achieving price stability is less pressing than before, given a labor market that, while cooling, remains robust.

The Federal Reserve should still be able to cut interest rates by 50 basis points this year, although the impacts of former President Trump's trade and immigration policies remain highly uncertain. However, there is considerable uncertainty surrounding this forecast, with numerous factors potentially exerting influence in either direction.

Makhlouf: Disinflationary Trend Faces Risks

Bullock: Reluctant to delay rate cuts

Reserve Bank of Australia (RBA) Governor Bullock stated on Friday that the RBA is averse to delaying the easing of monetary policy, a factor contributing to the RBA's decision to cut interest rates this week for the first time in over four years. Acknowledging to lawmakers that the central bank was late in initiating rate hikes during the previous tightening cycle, she indicated that the RBA is now more cognizant of the policy lags when considering the easing of policy.

Musalem: Inflation expectations warrant vigilance

In his Thursday remarks, St. Louis Federal Reserve President Musalem noted that while inflation is still expected to converge toward the Federal Reserve's 2% target, market indicators and survey data suggest a notable rise in short-term inflation expectations over the past three months. This development could necessitate a more restrictive monetary policy stance.

The risks of inflation remaining above 2% or accelerating appear skewed to the upside. Furthermore, another potential scenario must be considered: a weakening labor market coupled with a halt or reversal in the disinflationary trend. Stagflation, characterized by sluggish economic growth and elevated inflation, would present the most challenging environment for the central bank, forcing the Federal Reserve to prioritize either its employment or inflation mandate.

Given robust economic expansion, a tight labor market, accommodative financial conditions, core inflation exceeding 2%, and recent increases in some inflation expectations, the risk of inflation expectations becoming unanchored is elevated compared to a scenario characterized by economic slack and a lack of experience with high inflation among consumers and businesses. The current environment presents a more challenging situation than previously observed.

If the inflation persists at its current above-target levels, or if inflation expectations indeed rise, a more restrictive monetary policy stance may be warranted relative to the baseline trajectory.

[Today's Focus]

UTC+8 16:15 Preliminary reading of France's manufacturing PMI for February

UTC+8 16:30 Preliminary reading of Germany's manufacturing PMI for February

UTC+8 17:00 Preliminary reading of Eurozone's manufacturing PMI for February

UTC+8 17:30 Preliminary reading of UK's manufacturing PMI for February

UTC+8 22:30 Speech by ECB Chief Economist Lane

UTC+8 22:45 Preliminary reading of US S&P Global Manufacturing PMI for February

Risk Warnings and Disclaimers

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Owen Li

Cryptocurrency

Bitcoin (BTC/USD) is holding above $95k but facing significant resistance.

While spot Bitcoin ETFs have attracted substantial investments, there have been recent net outflows, and on-chain data suggests a cooling down in speculative appetite.

Strategy’s potential Bitcoin purchase, following a $2 billion fundraising, could be a catalyst for a future bull run.

Bitcoin has regained momentum after finding support at the key $95k level this week before rising to trade at 98357 at the time of writing. The recent consolidation suggests that Bitcoin could be ready for its next big rally, with a move higher looking appealing once more.

Crypto Heatmap, February 20, 2025

Source: TradingView (click to enlarge)

ETF Flows

Even though Bitcoin’s price fell from its all-time high on January 20, data from CoinShares shows that spot ETFs tied to Bitcoin have still attracted a huge $5.6 billion in new investments.

However, over the last few days we have seen a consistent amount of net outflows with figures of 60.7, 64.1 and 94.6 million USD in net outflows since Tuesday.

Source: Farside Investors

The Week on Chain – Glassnode Data Reveals Downside Risks

Money flowing into the market is slowing down, and trading in derivatives is dropping. The way short-term investors are buying now looks similar to May 2021, which was a tough time for the market.

Overall, in recent weeks markets are seeing the momentum of capital inflows has declined for all digital assets. This signals a meaningful cooling down in speculative appetite and alludes to a potential for capital rotation out of riskier assets on the road ahead.

This is in line with the overall market sentiment at the moment.Although US stock markets continue to hold near highs, the rise of Gold is a clear sign that markets remain nervous as haven demand continues to propel the precious metal to fresh highs.

Momentum in spot markets is slowing down, and less money is going into perpetual futures. This drop in demand has caused a big decline in open interest across major assets, showing less speculative trading and lower profits from cash-and-carry strategies.

The drop in open interest shows that traders are cutting back on risky leveraged bets, likely because the market feels weaker and less certain. The biggest decline is in Memecoins, which usually attract short-term traders but quickly lose popularity when confidence fades.

Source: Glassnode

Microstrategy or ‘Strategy’ Gearing Up for Fresh Buys?

MicroStrategy or as we should get used to calling them, Strategy didn’t buy any Bitcoin last week, keeping its total at 478,740 BTC for the second time.

However, MicroStrategy has hinted at a new Bitcoin purchase with its recent fundraising effort. On February 20, the company announced it had successfully priced a $2 billion offering of 0% convertible notes due in 2030. The deal, set to close on February 21, also gives buyers the option to purchase an extra $300 million in notes.

Will such a purchase prove to be the catalyst for another bull run?

Technical Analysis BTC/USD

Bitcoin (BTC/USD) from a technical standpoint on the daily timeframe sees price eyeing a breakout following a period of consolidation.

The consolidation between 94000 and 100000 has lasted for the last two weeks with Tuesday seeing price dip to a low of 93340 before reclaiming the 95000 handle.

Thursday daily candle did close back above the 100-day MA resting at 97899 but there are significant hurdles ahead. The 50-day MA rests at 99059, just shy of the psychological 100000 level.

Bitcoin (BTC/USD) Daily Chart, February 20, 2024

Source: TradingView.com (click to enlarge)

Dropping down to a two-hour chart and there may be scope for a short term pullback. Significant support rests below current price as we have the 50,100 and 200-day MA converging between the 96000-97000 handles.

This makes this a key area of confluence which could serve as a base for a move toward the 100000 psychological level and beyond.

Immeidate support rests at 97000 before the key 95000 handle comes back into focus.

Resistance rests at 99059 and 100000 before markets will turn their attention toward the 102157 resistance handle.

Bitcoin (BTC/USD) Two-Hour (H2) Chart, February 20, 2024

Source: TradingView.com (click to enlarge)

Support

97000

95000

93200

Resistance

99059

100000

102157

Source: ACTIONFOREX

Risk Warnings and Disclaimers

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Warren Takunda

Economic

American shoppers may face higher prices if US President Donald Trump goes ahead with some of his proposed tariffs, the US central bank has warned.

Minutes from the Federal Reserve's January meeting released on Wednesday revealed members of its committee believe Trump's policies might "hinder the disinflation process".

"Business contacts in a number of districts had indicated that firms would attempt to pass on to consumers higher input costs arising from potential tariffs," the minutes said.

The release of the comments comes as the Fed faces criticism from Trump for not cutting interest rates sooner after leaving rates unchanged in the January meeting.

The Fed minutes also revealed "elevated uncertainty regarding the scope, timing, and potential economic effects of possible changes to trade, immigration, fiscal, and regulatory policies".

"A couple of participants remarked that, in the period ahead, it might be especially difficult to distinguish between relatively persistent changes in inflation and more temporary changes that might be associated with the introduction of new government policies," the minutes added.

The Fed minutes also showed the central bank's readiness to hold rates steady amid stubborn inflation and economic-policy uncertainty.

The central bank left the key interest rate unchanged in a range of 4.25% to 4.5% in the January meeting, hitting pause after a string of cuts late last year.

The Fed's chair Jerome Powell has previously said the bank was not "in a hurry" to cut more, given significant uncertainty about where the economy might be headed

Analysts predict the Fed will likely cut the benchmark interest rate only once in 2025, with a big possibility of no rate cuts at all.

Trump attacks Fed after no change in interest rates

Trump's campaign promises included calls for lower interest rates, which would bring relief to borrowers.

It has sparked debate about whether he will respect the tradition of Fed independence, which is meant to keep it focused on the long term health of the US economy and away from politics.

Mr Powell previously told reporters that he had had "no contact" with Trump and the bank was focused on the data in setting rates.

But questions Powell faced about how the Fed is handling a new order from the White House to cancel diversity programmes - and why it had withdrawn from a global group of central banks focused on the risks of climate change to the financial system - underscored the challenges he will face keeping the bank above the political fray.

Source: BBC

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

Risk Warnings and Disclaimers

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Warren Takunda

Economic

It has been one month since Donald Trump's inauguration at the White House. The returned US president has been fast acting on his pledged policies, including sweeping tariffs, cutting federal workers, initiating a peace talk in the Ukraine war, and so on. While the outcomes of these events remain unclear, some prominent trends in the financial markets have reflected how investors responded to his policy stances.

A declining US dollar

The US dollar surged from Trump's election victory on 5 November last year until its peak in early January. However, it has reversed its bullish trend since Trump's inauguration on 20 January, with the dollar index (DXY) declining 2.2%, from above 109 to 107 as of the market close on 19 February.

Several factors have contributed to the weakening greenback.

First, markets had already priced in a strong dollar before his inauguration, and profit-taking may have caused the pullback. Secondly, he delayed tariffs on Mexico and Canada, as well as reciprocal tariffs on global trading partners. Although he also announced 25% levies on steel and aluminium, possibly extending to car makers, computer chips, and pharmaceutical products, these import duties will not take effect until April. So far, the only tariff actually implemented has been an additional 10% on China, which prompted immediate countermeasures.

As a result, fears of an immediate resurgence in inflation have faded, leading to a reversal in the dollar's trend. Meanwhile, US government bond yields have also declined since his inauguration for the same reason. Another key factor is that the Federal Reserve signalled it may need to slow down its balance sheet run-offs amid debt ceiling limits. This suggests that the central bank is likely to maintain high levels of government debt, pressuring borrowing costs and, in turn, weakening the dollar.

Record-breaking stock markets

Global stock markets have been on a bullish trend since Trump's inauguration, particularly European stocks. The delay in imposing sweeping tariffs may have been a key factor supporting risk-on sentiment. However, the underlying fundamentals driving the rally include expectations of lower global interest rates, the ongoing AI frenzy, and positive corporate earnings. Meanwhile, peace talks initiated by Trump with Russia have buoyed European defence stocks.

In fact, the rally in European stock markets has been broad-based, with all sectors gaining over the past month. Markets expect the European Central Bank to continue reducing interest rates and potentially introduce additional special funds for defence spending.

Trump's policies have also indirectly supported European sectors such as financials, technology, and industrials, leading to broad gains. His announcement to invest $500bn (€479bn) in US AI infrastructure, his pledge to deregulate the banking sector, and his call for the EU to increase defence spending have all contributed to the outperformance of these sectors.

An all-time high for gold

Gold has been an exceptional asset over the past month, with gold futures jumping 8% since Trump's inauguration. Demand for safe-haven assets has increased due to concerns about a potential global trade war and slowing economic growth. A weaker US dollar has also added to gold's bullish momentum. Additionally, Trump's administration cut thousands of federal workers with Elon Musk's assistance, which may lead to a rise in unemployment and weaker consumer spending.

"So far, that's been more disruptive to the markets and brought upside risks to inflation and, in the longer term, growth," said Kyle Rodd, a senior market analyst at Capital.com. "Another key question is how the slash-and-burn approach from DOGE impacts employment and spending."

Falling oil prices

Crude oil prices have been under pressure since Trump took office last month, with Brent futures down 6.6% and WTI futures slumping 7.8%. This aligns with Trump's goal of lowering global crude prices, as he called for oil producers to increase production with the slogan "Drill, baby, drill".

His peace talks with Russia may also involve easing sanctions on the country's oil exports. He argued that falling energy prices would offset price increases caused by higher tariffs. However, whether this will materialise remains uncertain.

Bitcoin trades sideways

Since Trump's inauguration, Bitcoin prices have fallen 4% as optimism surrounding his pledge to make America "a crypto capital" has faded.

This may be due to a lack of concrete policy catalysts. So far, Trump has only announced that his administration will evaluate whether to create a "national digital asset stockpile". However, he did not specify a Bitcoin reserve, which may have been a disappointment for Bitcoin enthusiasts.

Source: Euronews

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Risk Warnings and Disclaimers

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ING

Economic

Prospects of increased EU military spending are keeping bond yields under upward pressure, this time compounded by hawkish comments from the ECB. Hotter UK CPI figures on Wednesday also pushed in the direction of a more hawkish adjustment of BoE rate cut expectations.

Hawkish comments from ECB against backdrop of defence spending

Rates are still pushing higher, now compounded by hawkish remarks from the European Central Bank’s Isabel Schnabel. While dismissing the possibility of hikes, she mentioned the ECB was getting closer to where rates should be kept on hold or cuts at least paused. Coming from her, such remarks should not surprise as Schnabel has previously been estimating the neutral rate as high as 3%.

But what has changed in the meantime is the perception of the fiscal backdrop, where aside from the immediate supply implications, the prospect for larger defence investments also argues for a more expansionary stance ahead. The question of course remains to what degree such investments translate into economic activity.

Markets have pushed their expectations for the ECB deposit facility rate at year-end towards 2%, trimming chances that the ECB could end up in more accommodative territory. While front-end rates nudged up 3bp, the back-end bond yields still rose even more against the backdrop of higher debt issuance expectations. German Bunds underperformed versus swaps with the 10y yield back at more than 7bp above swaps – on closing levels that is the cheapest valuation to date.

This time around, however, the hawkish ECB tone has also prompted other sovereign spreads over Bunds to widen out – but not much yet. A 10y Italy-Bund spread of 108bp is still very tight coming from 115bp at the start of the year and levels over 150bp in June last year. However, we still feel the market may be a bit optimistic about the degree common EU issuance can cover the additional military spending needs, at least in the short run.

Markets are taking hotter UK inflation at face value

The UK’s headline CPI number for January came in at 3.0%, up from 2.5% the month before and above the consensus of 2.8%. Rates ticked higher, but in our view the underlying message from the data was actually more on the dovish side. Services inflation is admittedly still high, but at 5%, just about undershot consensus. And our estimate of core services inflation would now be just 4.2%, well below the 4.7% from two months back.

The 10y gilt yield rose by some 4bp to 4.6%, but markets are still close to fully pricing in a 25bp rate cut in May. A rate cut in March seems off the table and we tend to agree that the Bank of England will opt to cut rates gradually at a quarterly pace. With inflation still trending down, we think risks are tilted to the downside and any growth headwinds could quickly accelerate the path of easing. For the front end, we maintain an overall bullish view, and given the back end is more tied to the US, the next move will likely be a steepening of curves.

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

Risk Warnings and Disclaimers

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Warren Takunda

Economic

Australia's unemployment rate ticked higher in January even though job creation handily outpaced forecasts, data showed on Thursday, a mixed outcome that does little to clarify the outlook for further cuts in interest rates.

Figures from the Australian Bureau of Statistics showed net employment rose 44,300 in January from December, when it jumped 60,000. That was well above market forecasts for a 20,000 rise, and all of the gains came in full-time employment, which climbed by 54,100.

Annual jobs growth accelerated further to a blistering 3.5%, more than twice the pace seen in the United States.

The jobless rate still nudged up to 4.1%, from 4.0%, as the workforce expanded by even more than the increase in jobs. This was largely due to more women looking for work and finding jobs, which lifted the participation rate to a record high of 67.3%.

The ABS noted a pattern had emerged since the pandemic where an unusually large number of people were not employed in January but expected to start a job in the near future.

This phenomenon tended to see the unemployment rate rise in January, only to fall back in February.

"The uptick in joblessness overstates the extent to which the job market loosened last month," said Abhijit Surya, a senior economist at Capital Economics.

"The tight labour market reinforces our view that the RBA will deliver a shallow easing cycle."

The Reserve Bank of Australia this week trimmed its cash rate by 25 basis points to 4.10%, but cautioned further easing could not be guaranteed given upside risks to inflation.

It noted the strength of employment was a hurdle to further cuts since it could stoke cost pressures and prevent core inflation from slowing to the middle of its 2-3% target band.

with the S&P 500 gaining about a quarter of a percent to notch its second straight closing high,

Core inflation ran at 3.2% in the December quarter and is expected to slip under 3.0% this quarter. The RBA now expects it to bottom out at 2.7% and above its 2.5% target, in large part due to the "tight" labour market.

However, the main inflationary effect of strong employment is typically through rising wages, and they are actually heading in the opposite direction.

Figures released on Wednesday showed wages rose by a surprisingly subdued 0.7% in the December quarter, pulling annual growth down to 3.2% and a long way from its 2023 peak of 4.2%.

"This will keep the RBA alive to the prospect the labour market may not be as inflationary as their forecasts imply as they weigh the case for further easing," said Taylor Nugent, a senior markets economist at NAB.

"We assess the labour market is near balance and forecast the unemployment rate will rise only modestly."

The moderation in wages is one reason markets are still pricing in a 75% chance the RBA will cut rates again in May, after skipping a move at its April meeting.

The easing cycle is expected to be shallow, with rates finding a floor at 3.6% by year-end.