The US dollar edged higher, mainly due to broad weakness in the Japanese yen. US equities steadied after S&P 500 futures pointed to a calmer open following a 1% fall linked to an AI-led sell-off.
Attention is on a US Supreme Court tariff ruling that could add to trade friction and weigh on market mood. New US global tariffs are also being watched for their effect on risk appetite.
Dollar Strength And Yen Weakness
Fed Governor Christopher Waller said there are even odds of a 25 basis point cut at the March 17–18 FOMC meeting. Fed funds futures, however, price in nearly zero chance of a cut in March.
The next data release is ADP private employment change for the four weeks to 7 February, due at 1:15pm London (8:15am New York). The prior report said that for the four weeks ending 31 January private employers added an average of 10.25k jobs a week.
January ADP jobs rose by 22k, while non-farm private payroll growth was 172k. The February Conference Board Consumer Confidence index is due at 3:00pm London (10:00am New York).
Consumer confidence is expected to rise to 87.1 from 84.5 in January, the lowest level in more than a decade. January also saw weaker views of the labour market.
Market Risks And Key Data
The dollar is getting stronger, mostly because the Japanese Yen is weak. We are watching the USD/JPY pair hover near 150.50, a level that has historically drawn verbal intervention from Japanese officials. This environment may favor strategies that benefit from a stronger dollar, but traders should be wary of sudden policy announcements from Japan.
After the recent AI-driven selloff, which we saw push the Nasdaq 100 Volatility Index up over 15%, the market is now looking for its next move. This brief stability could be an opportunity, but the risk of another downturn makes protective options strategies, like buying puts on tech-heavy indexes, worth considering. The elevated volatility suggests option premiums are higher, rewarding well-timed positions.
The possibility of new global tariffs is a significant risk that could dampen market enthusiasm. We remember how the US-China trade disputes in 2018 caused the VIX to surge above 20 for extended periods, hitting cyclical stocks hard. A similar risk-off scenario would likely benefit safe-haven assets while hurting global equity markets.
There is a clear divide between Fed Governor Waller’s openness to a March rate cut and what the market is pricing. The CME FedWatch Tool currently shows just a 4% probability of a rate cut at the March 18 meeting, creating a huge potential for repricing if upcoming data disappoints. This makes derivatives tied to short-term interest rates highly sensitive to the next few economic reports.
This week’s ADP employment and Consumer Confidence data will be critical in shaping the Fed’s decision. With last month’s confidence reading of 84.5 being a multi-year low, another weak report could force the market to take the possibility of a March cut much more seriously. A miss in the jobs data would likely cause a rapid rally in bond futures and pressure the dollar.
