Mixed Signals from Macro Data Leave Investors Pausing

The U.S. dollar shimmered brighter in the early European morning on Friday, struggling to gain another winning week as traders tiptoe around next week's highly anticipated inflation data release. The Dollar Index, a showcase of the greenback's strength against six other currencies, sashayed 0.1% higher at 103.207, twirling towards its second consecutive positive week, a feat not seen since October.

The index dances in a somewhat narrow range this week as traders tried to decipher economic data and extract meaning from the words of Fed policymakers for hints about the Federal Reserve's future rate hike pace.

Mixed signals from macro data

The weekly jobless claims in the U.S. hit a high note of 196,000 for the week ending Feb. 4, an increase of 13,000 from the previous week but still one of the lowest in history. Yet, the number was higher than analysts' expectations and went against January's record low unemployment jobs data.

Despite a lively labour market, the Treasury yield curve remained inverted, with the yield on the 2-year Treasury surpassing that of the 10-year Treasury. On Thursday, the inversion broadened, a sign that investors were worried about near-term market conditions and a potential recession.

The combination of these economic signals and the Federal Reserve's persistent, bullish tone gave investors pause. On Thursday, U.S. stocks continued their losing streak, with the Dow Jones Industrial Average losing 0.73%, the S&P 500 falling 0.9%, and the tech-heavy Nasdaq Composite, burdened by a 4% dip in Google-parent Alphabet and a 3% decrease in Meta, dropping 1.02%. Until the U.S. economy's picture becomes clearer through economic data, markets are expected to remain choppy.

And so, the inflation aspect of the Federal Reserve's dual mandate is taking centre stage when it comes to monetary policy considerations. This brings next week's U.S. Consumer Price Index data, due on Tuesday, into sharp focus as it will further illuminate whether disinflation is truly underway.

FX markets

Meanwhile, EUR/USD is making traction towards 1.074, USD/JPY attempts to break below 130 and the risk-sensitive AUD/USD is struggling to keep its 50-EMA intact. GBP/USD took a 0.1% dip to 1.2105 after data showed that the U.K.'s gross domestic product fell 0.5% in December, but remained unchanged in the fourth quarter, narrowly avoiding a technical recession after a 0.3% drop in the July-September quarter.

Friday’s economic calendar

The economic calendar is packed with exciting events on Friday. From European leaders convening for a summit to key speeches from central bankers to the latest job market data from Canada, there's something for everyone.

First up, we have the EU Leaders Summit happening at 12:00 GMT. This gathering of the continent's most influential decision-makers is sure to shed light on their plans for the future and how they intend to steer the eurozone towards growth and stability.

At the same time, the Russian central bank is set to announce its latest interest rate decision, which is expected to remain unchanged at 7.50%. Despite market expectations for no change, every little movement from the bank can have a big impact on the ruble.

Later in the day, we have a trio of events in quick succession that are sure to keep things interesting. The National Institute of Economic and Social Research (NIESR) will release its monthly GDP tracker for the UK, which is forecasted to decrease by 0.1% this month, while the Bank of England's MPC member Silvana Tenreyro will take to the stage to share her thoughts. To top it off, the European Central Bank's Isabel Schnabel will also deliver a speech.

The United States will also be in the spotlight with two major consumer sentiment surveys coming out. The Michigan Consumer Expectations and Michigan Consumer Sentiment indices will give us a pulse on how the American consumer feels about the economy and their own financial prospects. Michigan Consumer Expectations (Feb) in the US is forecasted to go up by 0.2 points to 62.9. Michigan Consumer Sentiment (Feb) in the US is expected to reach 65.0 compared to 64.9 last month.

We can't forget about Russia, where the latest consumer price index data will be released. This important inflation measure will give us a glimpse into the country's economic health and how prices are affecting the average consumer.

Last but not least, we have Federal Reserve Governor Michelle Bowman taking to the stage for a speech and the latest Baker Hughes oil rig count data will be released. Finally, the U.S. federal budget balance will also be released, giving us a picture of the government's finances.