Banks in China have been instructed by the People’s Bank of China (PBOC) to reduce dollar deposit rates in recent weeks. This action aims to discourage dollar holdings and promote conversions into the yuan, with regulators expressing concern over the amount of cash held onshore in dollars.

Many banks, regardless of size, have received guidance to lower these rates, and some have already taken this step. The low yuan rates have led to carry trades, where individuals opt for dollar deposits instead. This method of capital control is common in Chinese banking, reflecting Beijing’s current stance on the economic situation.

Lowering dollar deposit rates is a move designed to nudge both businesses and individuals towards holding more yuan rather than foreign currency. Keeping too much capital in dollars means less liquidity flows through the domestic financial system in the way policymakers intend. The authorities are not using direct capital controls in this instance, but instead, they are making dollar holdings less attractive in comparison.

This effort comes as part of broader objectives. The yuan remains under pressure, influenced by interest rate differences with other major economies as well as broader capital flow patterns. With lower rates on dollar deposits, the appeal of holding onto these funds diminishes, which in theory should prompt movement back into local currency. If momentum builds, it can provide reinforcement to the yuan at a time when external factors have added volatility to exchange rates.

There is also an impact on borrowing costs. When fewer dollar deposits sit within Chinese banks, the availability of dollar lending within the country declines. This naturally translates to higher dollar funding costs domestically, something that policymakers are likely comfortable with if it deters more capital from sitting idle in foreign currency. The authorities are not closing off dollar access outright, but they are shifting incentives in a manner that aligns with exchange rate management.

For those engaged in markets where rates, liquidity, and currency fluctuations play a fundamental role, this move feeds into changing cost structures. Depending on positioning, some may find pressures increasing, particularly where funding in offshore dollars has been relied upon. Meanwhile, those holding yuan may find fewer distortions in rates.

In the weeks ahead, attention will likely remain on whether further adjustments occur. If policymakers push rates lower again, it would reflect a continued effort to bring more capital back into domestic circulation. On the other hand, if conversion levels rise sufficiently, the need for further interventions might wane. Economic momentum remains a focal point, particularly given wider global interest rate conditions.

Those assessing exposures in this environment would do well to consider how adjustments in policy may shape broader market movements. The influence of capital controls—whether explicit or indirect—has long been a feature of financial conditions in China, and this episode serves as another example of that dynamic at play.

In February 2025, Italy’s consumer price index increased by 0.2% on a monthly basis, meeting expectations. This data reflects the country’s inflationary trends and economic environment.

The EUR/USD pair remained steady around 1.0400, influenced by heightened demand for the US Dollar amid tariffs and geopolitical issues. Despite positive German retail sales, the Euro faced challenges amidst ongoing inflation concerns.

Looking ahead, the US Bureau of Economic Analysis is set to publish the January core Personal Consumption Expenditures price index data, projected to show a 0.3% monthly increase. Meanwhile, GBP/USD traded near 1.2600, reacting to uncertainty over US tariffs and upcoming inflation data.

The recent inflation figure from Italy shows that price increases are moving as expected. This suggests that inflation is neither speeding up nor slowing down unexpectedly, which helps traders anticipate central bank decisions. Since inflation is one of the biggest factors in shaping interest rate expectations, this stabilisation reassures markets for now.

At the same time, the Euro has struggled to gain traction, and we have noticed that it remains under pressure, particularly against the Dollar. While positive German retail sales might have usually helped the currency, broader concerns over inflation and global trade tensions have outweighed these gains. The fact that the pair has stayed near 1.0400 tells us that traders are prioritising the safety of the Dollar in the current environment. The ongoing geopolitical concerns and tariff discussions appear to be strengthening this sentiment.

A great deal of attention now shifts to inflation data from the United States. The upcoming core PCE report is likely to influence expectations around monetary policy. If the monthly rise comes in at 0.3% as anticipated, it reinforces the view that the Federal Reserve has little reason to adjust its stance in the immediate future. However, if this number surprises in either direction, we would likely see movements across Dollar-based pairs.

Sterling, on the other hand, has been holding around 1.2600. This reflects the careful positioning of traders as they await further developments on both tariffs and inflation data. With the next wave of economic releases approaching, we are preparing for possible changes in market sentiment that could affect trading strategies.

In the coming weeks, traders should remain alert to new data releases, particularly those that could alter interest rate expectations. Inflation numbers have dominated decision-making in recent months, and that seems unlikely to change given current conditions. As always, closely watching economic data and market reactions will be key.

Gold prices have declined over 2% this week, breaking an eight-week streak of gains. This decline is influenced by recent increases in the dollar and external pressures from tariffs.

Technical analysis suggests a potential deeper decline towards the 100-day moving average at $2,720. Currently, the market appears overdue for a correction after a long period of stability.

The 4-hour chart indicates a shift in momentum, particularly with the 100-bar moving average breaking. Key levels to monitor include the 23.6 Fib retracement at $2,868, the 200-bar moving average at $2,830, and the 38.2 Fib level at $2,814.

While there is downward momentum in gold, identifying opportunities for dip buyers is essential. Central banks remain bullish on gold, with China increasing its gold reserves.

The seasonal advantage from December to January has ended, suggesting a market correction is underway, allowing potential opportunities for buyers.

Gold’s recent pullback has brought an end to its consistent rise, and the reasons behind it are not hard to identify. A stronger dollar has applied pressure, making the metal less attractive to international buyers. New tariff developments have only added to the headwinds. Given this backdrop, attention has now turned to whether this is merely a short-term cooling or the beginning of a deeper slide. The technical picture does not rule out further losses in the days ahead.

The break below key moving averages on shorter timeframes suggests that sentiment has weakened. If momentum continues in this direction, the 100-day moving average near $2,720 could be tested, bringing the most recent rally firmly into question. However, gold has had a habit of finding strong support after declines. Traders looking for a return to strength will want to see a recovery above resistance levels. The first hurdle sits at $2,868, aligning with the 23.6% Fibonacci retracement. Should prices push beyond that, the next critical test will be at $2,830, where the 200-bar moving average currently stands. Further down, $2,814 marks another level of interest, as buyers may step in around the 38.2% retracement.

Beyond charts and technicals, gold’s broader support remains intact. Central banks continue accumulating reserves, with China extending its purchases. This strengthens confidence in the long-term case for holding the metal, even as pressures from currency fluctuations and policy decisions create volatility. While the December-to-January seasonal boost has now faded, history suggests that corrections often open doors for those with a longer-term perspective.

The next several weeks will require a careful approach. The recent breakdown demands respect, but the fundamental factors that underpinned gold’s multi-month rise have not vanished. Whether fresh buyers emerge or further weakness takes hold will depend on how prices behave around the identified levels.

In February 2025, Italy’s Consumer Price Index (EU Norm, year-on-year) recorded a growth rate of 1.7%, which was below market expectations of 1.8%. This figure reflects a slower rate of inflation compared to what analysts had anticipated.

A lower-than-expected inflation figure from Italy suggests that prices are rising at a slightly slower pace than the market had forecast. This could mean less pressure on the European Central Bank to act aggressively with interest rates. If inflation remains at this level or slows further, policymakers may feel less urgency to tighten monetary policy. For traders, this data might indicate a potential shift in market sentiment, particularly in areas sensitive to inflation expectations.

Markets typically react when data comes in different from what was predicted. The fact that inflation is slightly below forecast could shift bond yields, currency movements, and expectations for future rate decisions. A softer inflation reading sometimes leads to lower bond yields, as investors adjust their positions based on the idea that rates won’t have to rise as much. Currency markets often follow, with expectations around monetary policy driving trading strategies.

In the coming weeks, traders should watch for further inflation readings from the eurozone as a whole. If other countries report similar results, it might reinforce expectations that inflation pressures are easing. On the other hand, if stronger inflation figures emerge elsewhere, views on the ECB’s next steps may shift again. Keeping an eye on energy prices, wage trends, and any central bank commentary will also be important, as these factors help shape where inflation might go next.

For those dealing in derivatives, this kind of data can affect volatility levels and pricing across various markets. If inflation surprises continue, it may create fresh trading opportunities or risks, depending on positioning. Monitoring both macroeconomic data and market reactions will be key to staying ahead of rapid adjustments in expectations.

China’s Politburo aims to adopt a more proactive macroeconomic policy as reported by state media. Plans include expanding domestic demand and stabilising both the housing and stock markets.

Additionally, efforts will be made to manage risks and external shocks in crucial sectors, alongside promoting sustained economic recovery. The commentary indicates intentions, but tangible effects remain uncertain.

Recent tariff threats from former President Trump have contributed to market unease, reflected in a 1.3% drop for the Shanghai Composite and a 2.7% decrease in the Hang Seng Index.

Policymakers in Beijing are signalling a shift towards stronger economic measures. The latest messaging from state media suggests a drive to support growth through increased domestic consumption and a steadier financial environment. While the rhetoric is clear, the true test lies in how these objectives translate into action. Given the fragility in certain markets, many will be watching closely to see what specific steps follow.

Meanwhile, external concerns weigh on sentiment. Trump’s recent statements about potential tariffs have already rippled through equities, with mainland shares falling and Hong Kong-listed stocks taking an even steeper hit. Investors have dealt with similar rhetoric in the past, but the timing and substance of these warnings add layers of uncertainty. The memory of prior trade disputes remains fresh, and economic planners in China will likely factor in these risks when crafting policy responses.

These developments do not exist in isolation. Housing and equities remain under pressure, and authorities appear intent on preventing further destabilisation. Given previous attempts to engineer stability, expectations will be set on whether the right measures are deployed this time. Over the coming weeks, data releases and any fresh government actions will likely shape the direction of sentiment.

Markets that react to policy shifts must pay attention to more than just the broad statements. While Beijing has reaffirmed economic priorities, execution will matter. Recent history suggests that direct intervention—such as supporting lending or adjusting capital requirements—could follow. Observers will need to assess whether these adjustments effectively counteract prevailing headwinds or merely buy time.

With external pressures growing alongside domestic challenges, staying reactive to new developments will be necessary. If further responses from Washington fuel uncertainty, the market reaction may extend beyond equities into other areas. The coming weeks may test assumptions about policy effectiveness, as well as the broader ability to sustain confidence in financial markets.

On 4 March, President Trump confirmed that tariffs will take effect, which has led to a stronger US Dollar (USD) against various currencies. The DXY could rise to 108, reflecting shifts in financial markets, with equity markets declining by 3% in Japan and Korea.

Crypto markets displayed volatility, with the MVDA index of the 100 largest digital assets plummeting by 20% this week. This decline may influence broader market conditions and further defensiveness in FX.

A potential decline in January’s real spending figures and the core PCE deflator could negatively impact the USD. An expected monthly trade deficit of $110-120bn serves as a reminder of the ongoing goods deficit, which was $1.2 trillion last year.

With fresh tariffs on the horizon, the USD has strengthened, and some expect the DXY to reach 108. Equity losses in Japan and Korea suggest that investors are responding to shifting trade conditions with a degree of caution. A 3% decline in these markets reflects reduced confidence, possibly tied to concerns about global supply chains.

We have also seen heightened turbulence in crypto markets, with the MVDA index suffering a steep drop of 20%. This level of movement could influence how traders position themselves across other markets, particularly in forex. When capital moves away from riskier assets, defensive positions in traditional currencies tend to increase.

However, upcoming data poses risks to the USD. If January’s real spending figures show weakness alongside softer core PCE inflation data, the strength of the currency may be tested. Lower consumer activity often leads to cooling economic momentum, which could make foreign exchange markets more reactive.

Also worth mentioning is the monthly trade deficit, which is projected to land between $110bn and $120bn. Last year’s goods deficit stood at $1.2 trillion, which means the trade gap remains large. These figures, once confirmed, could factor into expectations for long-term USD demand and market behaviour.

For those tracking derivatives, there are a few things to note. A stronger dollar typically pressures commodities and risk-sensitive currencies, while weaker spending data might push traders to reassess rate expectations. A volatile crypto environment only adds to the need for adaptability.

As new data emerges, price actions should be watched closely, particularly in areas that respond sharply to shifts in trade and inflation expectations. Traders navigating these movements should be prepared for further fluctuations in both FX and equities as the market absorbs the latest developments.

Japan’s housing starts for January 2025 decreased by 4.6% year-on-year, which is worse than the anticipated decline of 2.6% and lower than the previous month’s drop of 2.5%.

This release typically has a limited impact on the Japanese yen’s value.

As of the report, the USD/JPY exchange rate is approximately 149.75.

A sharper decline in Japan’s housing starts suggests that residential construction is slowing at a faster pace than predicted. A drop of this size may indicate growing caution among developers, possibly due to higher costs, weaker demand, or tighter financing conditions. With January’s decline exceeding both expectations and December’s reduction, the trend appears to be weakening rather than stabilising.

Historically, this data does not have an immediate or pronounced effect on the yen. However, when seen alongside other economic figures, it may help shape expectations for broader market conditions. If signs of a slowdown accumulate, investors could start reassessing their outlook for policy moves and financial stability.

At present, the yen remains relatively steady, with the dollar trading around 149.75 against it. Given that exchange rate movements often stem from multiple influences rather than a single report, this stability suggests that traders are prioritising other factors, such as interest rate expectations or global risk sentiment.

Looking ahead, keeping an eye on upcoming data releases and any policy signals will be essential. If weaker trends persist, speculation may intensify around any potential responses from policymakers. Meanwhile, fluctuations in US yields or broader currency trends could also shape short-term movements, even if domestic housing data remains a secondary concern for most participants.

In February, the Consumer Price Index (CPI) in Hesse, Germany, recorded a year-on-year increase of 2.3%. This figure is a decrease from the previous month’s rate of 2.5%.

The latest Consumer Price Index (CPI) numbers from Hesse suggest inflation is slowing, though only slightly. A drop from 2.5% to 2.3% isn’t massive, but it does indicate that prices are rising at a gentler pace than before. For those watching financial markets, particularly derivatives traders, this isn’t something to ignore. Inflation data like this shapes expectations about interest rates, and expectations about interest rates move markets.

If prices continue rising more slowly, the European Central Bank (ECB) may have reason to hold off on tightening monetary policy further. This is particularly relevant given that central banks across the world are weighing up how much more action is needed to keep inflation in check. While a small change in one state’s inflation rate isn’t enough to dictate overall policy, Hesse’s data will feed into broader calculations.

We are watching a period where traders need to remain on their toes. It won’t be enough to glance at the headline figures; understanding the forces behind them will be just as important. Are energy costs falling? Is consumer demand softening? If this trend of cooling inflation continues, bond yields could shift, equity markets could react, and pricing in the derivatives space could adjust accordingly.

This means strategy will be key in the weeks ahead. Keeping an eye on upcoming releases from the wider eurozone will help assess whether this German state’s inflation slowdown is part of a wider movement or an isolated case. If broader inflation figures follow the same trajectory, rate expectations could shift, altering market dynamics.

For now, traders should position themselves with awareness of these economic shifts. It’s best not to assume that inflation will decline in a straight line—unexpected data can always prompt volatility. Those who stay informed and agile will be in a better position to navigate the coming weeks.

Japan’s Prime Minister Ishiba has revised the FY25/26 Budget plan, setting it at JPY 115.2 trillion, a reduction of JPY 343.7 billion. The changes will also affect planned bond issuance.

The updated budget will feature increased household subsidies aimed at ensuring free education for children. Additionally, a higher threshold for tax-free income will lead to a decrease in tax revenue of JPY 621 billion.

To address higher expenditure and reduced tax income, the government will utilise a reserve fund and other unallocated resources.

These budget adjustments reflect the administration’s response to fiscal pressures while attempting to balance social support policies. By reallocating funds and adjusting taxation, Ishiba is working to maintain stability without escalating public debt unnecessarily. This decision is not without consequences. The revised bond issuance plan will shift expectations in the debt market, influencing yields and investor sentiment.

The increase in household subsidies, particularly the emphasis on free education, follows ongoing government efforts to ease financial burdens on families. While this is likely to stimulate domestic consumption, it also raises questions about long-term fiscal sustainability. The reduction in tax revenue, stemming from more lenient income tax thresholds, introduces another variable. A shortfall of JPY 621 billion means a greater reliance on reserves, which, although effective in the short term, cannot be replenished quickly.

Given the decision to draw from these pools of capital, markets should prepare for adjustments in liquidity conditions. Short-duration debt instruments may see increased demand if investors anticipate further shifts in issuance strategy. Longer-term bonds could face alterations in pricing as participants assess the government’s capacity to service future obligations under these revised conditions.

We recognise that immediate market reaction will depend on a combination of domestic and international sentiment. Japan’s budget decisions rarely operate in isolation. Foreign exchange markets, particularly those monitoring the yen, will react to any perceived weaknesses in fiscal discipline. If confidence wanes, volatility may increase, influencing positioning in currency pairs against the yen.

The response from policymakers beyond Japan will also shape expectations. If central banks elsewhere continue their current trajectory on interest rates, demand for Japanese bonds could fluctuate. A lower issuance volume, if confirmed in the coming weeks, may tighten supply, impacting yields across multiple maturities. Market participants will need to assess whether this shift aligns with global trends or introduces divergence that alters capital flows.

As more details emerge on how reserve funds will be allocated, further refinements in strategy will become necessary. The balance between supporting households and maintaining fiscal discipline remains delicate, and any deviation from stated plans may introduce additional uncertainty.

In February, the Consumer Price Index (CPI) in Saxony, Germany, increased from -0.4% to 0.3%. This change indicates a rise in inflation rates within the region.

EUR/USD remains steady around 1.0400 as market participants await inflation data from Germany and the US. Meanwhile, GBP/USD trades near 1.2600, impacted by tariff uncertainties from the US.

The US core Personal Consumption Expenditures (PCE) Price Index for January is projected to rise by 0.3%. Gold prices decline towards a two-week low amid a stronger US dollar, as traders anticipate the upcoming PCE data.

Saxony’s inflation shift from -0.4% to 0.3% in February shows a turnaround in pricing pressure. An increase like this suggests that consumer prices are no longer falling and may be starting to climb. If this trend continues in other German states, broader inflation expectations could change. That, in turn, might prompt shifts in European Central Bank policy discussions.

At the same time, the euro holds steady around 1.0400 ahead of incoming inflation reports from both Germany and the US. A lack of movement often signals that traders are waiting for fresh data before making any large bets. On the other hand, sterling sits near 1.2600, with traders factoring in tariff concerns raised by the US. Such policies can influence the demand for goods and services, which affects the pound’s valuation relative to other currencies.

We are also looking at the US core PCE Price Index, which is predicted to climb by 0.3% for January. This figure is a preferred inflation measure for the Federal Reserve. When such data aligns with or surpasses forecasts, markets usually adjust expectations for future interest rate moves.

Meanwhile, gold prices have slipped towards a two-week low, weighed down by a stronger US dollar as traders prepare for the PCE release. A stronger dollar makes gold more expensive for international buyers, reducing demand. If the inflation data meets or exceeds market expectations, this could put further pressure on gold, at least in the short term.

For derivative traders, the focus remains on inflation numbers and the potential impact on central bank decisions. Fast reactions to any surprises will likely define market movements in the next few weeks.