Canada's Economy Faces Years of Pain, Warns BoC Chief

Senator Elizabeth Warren is set to ask the Senate to condemn and reverse a major sale of 500,000 advanced artificial intelligence chips to the United Arab Emirates. The move follows reports of a significant financial transaction between a prominent UAE sheikh and the Trump family that occurred just before Donald Trump’s inauguration.

Warren’s resolution, shared with CNBC, directly challenges the chip deal in light of a Wall Street Journal report. The report detailed how Sheikh Tahnoon bin Zayed Al Nahyan, a key figure in the UAE, secretly acquired a 49% stake in World Liberty Financial, a Trump family company. This deal allegedly directed approximately $187 million to Trump family entities just four days before Trump took office.

Figure 1: Senator Elizabeth Warren (left) is challenging an AI chip deal involving entities linked to UAE's Sheikh Tahnoon bin Zayed Al Nahyan (right).

The AI chip sale was approved months after this investment, raising allegations of bribery. Sheikh Tahnoon's own AI enterprise, G42, is slated to receive the chips.

"Why in the world was Donald Trump trying to ship off our state-of-the-art chips to the UAE — and China — when American startups, universities, and small businesses need them here at home?" Warren is expected to state on the Senate floor. "Well, now we know that the UAE greased the skids months earlier when it secretly agreed to pour hundreds of millions of dollars into a Trump family crypto venture."

National Security and the China Factor

The deal would send 500,000 of Nvidia's most advanced chips to the UAE annually. This has triggered national security alarms, as previous U.S. administrations have warned against selling such technology to the UAE over fears it could fall into China's hands. The United States is in a fierce competition with China for AI dominance and strictly controls its semiconductor technology.

"Trump is profiting from decisions that make it easier for countries like China to get their hands on some of our most sensitive and advanced technology," Warren, who serves as the top Democrat on the Senate Banking Committee, plans to argue.

Figure 2: Former President Donald Trump met with Tahnoun bin Zayed Al Nahyan, the UAE's National Security Advisor, whose AI firm is set to receive the chips.

Warren's Resolution Aims to Force a Vote

If passed, the resolution would formally state that the Senate "Condemns Donald Trump's decision to allow the sale of advanced AI chips to the United Arab Emirates and calls for the reversal of this decision."

While any single senator can block the resolution, Warren's push is designed to put political pressure on Republicans, who have also expressed concerns about advanced AI technology reaching China.

"Congress needs to grow a spine," Warren is expected to add. "We cannot allow American national security to be sold to the highest bidder."

The Trump administration has consistently denied any wrongdoing concerning Sheikh Tahnoon's investment or the subsequent chip deal. When asked about the arrangement this week, Trump commented, "Well, I don't know about it."

The UK is on track to hit its 2% inflation target ahead of schedule, according to Bank of England Governor Andrew Bailey, but the positive economic news is shadowed by growing political uncertainty.

In a conversation with CNBC, Bailey confirmed that the Monetary Policy Committee (MPC) expects inflation to reach the bank's target by spring, sooner than previously anticipated. However, he stressed that the key challenge is ensuring it stays there.

"The critical thing now, though, is, of course, that it stays there," Bailey said.

BoE Holds Rates Steady Amid Internal Division

The governor's comments followed the central bank's decision to leave interest rates unchanged at 3.75%. While the move was widely expected, it revealed a sharp 5-4 split within the nine-member MPC.

According to Bailey, the division reflects a core debate over how to manage inflation sustainably. While falling energy prices are providing downward pressure, some committee members remain concerned about persistent inflation lingering from past economic shocks. This debate over the right policy level to lock in the 2% target was "the focus" of the meeting.

"I'm encouraged by what we are seeing, but I do want to see some more evidence," Bailey added, highlighting the need for progress in areas like services inflation and wage setting to ensure the target is met "sustainably."

Analysts interpreted the close 5-4 vote as a signal of a more dovish stance. Thomas Pugh, chief economist at RSM U.K., predicts the next interest rate cut could come as early as April, when inflation is projected to be under 3% and wage growth has cooled further. He also suggested another cut could be on the table in the second half of the year.

Political Storm Clouds Gather Over UK Markets

Thursday's rate decision coincided with renewed uncertainty surrounding the leadership of Prime Minister Keir Starmer, creating a new layer of risk for UK assets.

Market analysts are closely watching the political developments. Dominic Bunning, head of G10 FX strategy at Nomura, pointed out that increased pressure on Starmer poses a risk to the UK's fiscal trajectory. He noted that during past political challenges, sterling and long-end gilt yields have shown a negative correlation.

Bunning argued that there are few, if any, potential successors to Starmer who would be considered more market-friendly, as his political bias is "firmly towards the centre rather than the left of the party." A change in leadership would likely mean a new finance minister, "creating the risk of negative fiscal sentiment returning."

Pugh of RSM U.K. echoed these concerns, stating that a potential leadership challenge is now the biggest risk to gilt yields. "The odds of Kier Starmer not being Prime Minister by the end of the year have jumped from around 50% yesterday to over 60% today," he noted.

Global Economy Shows Resilience, But Uncertainty Remains

When asked about the UK's political situation, Bailey declined to comment on specific matters but acknowledged that the central bank is carefully monitoring a "heightened level" of global uncertainty.

He observed that the world economy has proven more resilient than anticipated over the last year.

"The world economy has been more robust, frankly, looking back, than we thought it would be a year ago, looking forwards," Bailey said.

However, he cautioned that this does not guarantee a smooth path ahead. "That doesn't mean that therefore it follows naturally that we will just sort of sail through all of this uncertainty around the world unaffected," he concluded, reaffirming that the BoE will continue to watch developments closely.

Source: decrypt

The European Central Bank (ECB) has decided to keep its key deposit rate steady at 2.00%, a move widely anticipated by markets and analysts. In her statements, President Christine Lagarde chose to highlight the economy's bright spots, such as low unemployment, while downplaying concerns over slowing inflation and a stronger euro.

This analysis maintains the forecast that the ECB will hold the deposit rate at 2.00% through both 2026 and 2027.

Economic Strengths Over Inflation Worries

The ECB's official press release was brief and echoed its December guidance. The bank's commentary focused on positive economic indicators, including robust private balance sheets, rising public spending, and a tight labor market. This optimistic framing came even as inflation fell to 1.7% in January.

During the subsequent press conference, Lagarde continued this narrative, giving little attention to negative factors like trade tariffs. She attributed the recent drop in inflation primarily to energy base effects and other one-off factors. Lagarde stressed that underlying inflation indicators remain stable and that most medium-term inflation expectations are anchored at the 2% target.

She also noted that the ECB has long projected inflation to be below 2% in 2026. The 1.7% figure for January, while lower than December's projection, was consistent with September's staff forecasts. This signals a clear preference for maintaining the current deposit rate, even with inflation currently below target.

Figure 1: Eurozone inflation trends show headline inflation dipping below the ECB's 2% target, a key factor in the bank's recent policy discussions.

Lagarde Unfazed by Stronger Euro

Addressing the euro's exchange rate, Lagarde clarified that the ECB does not target specific rates but does acknowledge their impact on inflation. She confirmed that the governing council had discussed the euro's movements, particularly against the U.S. dollar.

However, she observed that the appreciation has been ongoing since March and that recent developments have not triggered any specific concerns. Lagarde stated that the impact of a higher EUR/USD is already incorporated into the bank's baseline projections. Her overall tone on the currency's strength was neutral, effectively downplaying its significance as expected.

What's Next? Repo Line Reforms on the Horizon

Lagarde also signaled that the ECB is preparing to reframe its repo lines, with a formal announcement expected within days. The goal is to improve access and make these facilities more attractive to national central banks located outside the euro area and Europe, enhancing their global utility.

Forecast: No Rate Changes Through 2027

Looking ahead, the forecast remains for the ECB to hold its deposit rate at 2.00% throughout 2026 and 2027. The combination of better-than-expected growth and declining unemployment reduces the pressure for rate cuts in 2026, despite inflation running below the bank's target.

Figure 2: A steady decline in the unemployment rate underpins the ECB's confidence in the economy's underlying strength.

At the same time, with inflation also projected to stay below target in 2027, rate hikes are considered unlikely. From a strategic perspective, this outlook—combining a positive growth forecast, a tight labor market, and increased public spending in countries like Germany—supports a payer bias in the short end of the EUR swap curve.

The Bank of England (BoE) has held its key interest rate steady at 3.75%, but a surprisingly close 5-4 vote has signaled a dovish shift, increasing the likelihood of future rate cuts.

While the decision to maintain the Bank Rate was expected, the narrow margin suggests the Monetary Policy Committee (MPC) is more divided than anticipated. This development has raised market expectations for a rate cut as early as March, though the final outcome will depend heavily on two upcoming labor market reports and inflation prints.

A Surprisingly Divided Monetary Policy Committee

Four members of the committee dissented from the decision, voting instead to lower rates. The dissenters were Dhingra, Taylor, Ramsden, and Breeden.

The votes from Ramsden and Breeden were particularly noteworthy, as recent economic data had, if anything, pointed toward a more hawkish stance since the December meeting. Both members cited new analysis in the latest monetary policy report as a key factor in their decision, highlighting that structural changes in wage-setting are no longer expected to add significant inflationary pressure.

BoE Forecasts Weaker Growth and Slower Inflation

The Bank of England's new monetary policy report paints a distinctly more dovish picture of the UK economy. Compared to its November projections, the BoE now anticipates lower GDP growth, higher unemployment, and softer inflation.

Key forecast revisions include:

• CPI Inflation: Now projected to be 1.7% in the first quarter of 2027, down from the previous forecast of 2.2%.

• Annual GDP Growth: Revised downward by 0.3 percentage points to 1.2%.

Contrasting Signals from Recent Economic Data

This cautious outlook from the BoE contrasts sharply with recent PMI data, which suggests a more robust economy. The composite PMI recently hit its highest level in three years, and price indices within the report indicate that inflationary pressures could be more sustained. Upcoming data will be crucial in clarifying which of these conflicting signals more accurately reflects the state of the UK economy.

Figure 1: Recent UK PMI data shows a strengthening economy, with the composite index at a three-year high, contrasting with the Bank of England's more cautious economic forecast.

Outlook for UK Rates and the British Pound

The timing of the next rate cut appears to rest heavily on Governor Andrew Bailey, who has indicated a readiness to ease policy. Bailey noted that the two cuts currently priced in by markets seem fair.

While the timing will ultimately hinge on incoming data, the bar for further cuts has likely been raised as the Bank Rate approaches neutral levels. A first rate cut is projected for April, with another potentially following in November.

In currency markets, the EUR/GBP pair traded higher following the announcement, supporting expectations for a weaker pound. The forecast for EUR/GBP is 0.89 over a 12-month horizon, driven by narrowing interest rate differentials, a relatively weaker growth outlook for the UK, and a positive correlation to a weaker U.S. dollar environment.

Bitcoin's price has dropped below the $71,000 mark, wiping out all gains accumulated since President Donald Trump's 2024 re-election. The leading cryptocurrency plunged over 7% on Thursday, extending a sharp decline that began in mid-January.

As of 04:30 GMT, Bitcoin was trading around $70,900. This latest slide brings the digital asset's total loss to nearly 20% since the start of the year.

From All-Time Highs to a Steep Correction

The current downturn follows a period of extreme volatility. Bitcoin first crossed the $100,000 threshold in December 2024 and revisited that price point in both February and May 2025. However, the asset has been on a largely downward trajectory since hitting an all-time high of more than $127,000 in October.

The earlier bull run was fueled by President Trump's re-election, which sparked market expectations for a lighter touch on digital asset regulation after years of government crackdowns.

Regulatory Hurdles and Political Scrutiny

During his campaign, Trump pledged to make the U.S. the world's cryptocurrency capital. Before winning the vote, he and his sons launched their own crypto firm, World Liberty Financial. Shortly after taking office, the administration announced plans for a strategic crypto reserve that would include Bitcoin and four other cryptocurrencies.

Despite these pro-crypto signals, a Trump-backed bill to regulate cryptocurrency trading has stalled in the U.S. Senate. Disagreements between traditional banks and crypto firms have created a legislative deadlock, casting a shadow of uncertainty over the industry.

Adding to market jitters, Democratic lawmaker Ro Khanna announced on Wednesday that he would investigate World Liberty Financial. The move followed a report from The Wall Street Journal stating that representatives of an Abu Dhabi official had signed a $500 million deal to acquire a 49 percent stake in Trump's new crypto venture.

Broader Markets Feel the Pressure

The negative sentiment was not confined to crypto. Equities and commodities markets also posted significant losses on Thursday, indicating a wider risk-off mood among investors.

• Silver: Dropped by as much as 16%.

• Hong Kong Stocks: The benchmark index fell by approximately 1.3%.

• Japanese Stocks: The benchmark index declined by about 0.7%.