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In the first session of the week, investors' sentiment improved as sovereign interest rates declined in both sides of the Atlantic and amid better-than-expected corporate earnings releases in the US. Equity indices rose substantially across the board.

Investors ended the week on a mixed note after US December jobs data showed the unemployment rate falling to 4.4%, prompting markets to push back expectations for the next Fed rate cut from March to June. As a result, 2-year Treasury yields edged higher and the US dollar strengthened. Equities nonetheless advanced to new highs.

Central banks continued to center the stage on Thursday. On the one hand, investors continued to digest the Fed meeting, where Chairman Powell signaled a “slower for higher” approach in interest rates hikes, and, on the other, the Bank of England’s decision to increase rates by 75bp, albeit diminishing market expectations for the path ahead.

On Friday, the Japanese yen strengthened sharply after the Bank of Japan left its policy rate at 0.75% and signaled a hawkish stance. Speculation around potential currency intervention intensified after New York Fed officials reportedly sought information on the yen’s exchange rate, and Prime Minister Takaichi warned of action against “abnormal” market moves.

Yesterday's data releases showed a stronger-than-expected labour market in the US, with non-farm payrolls increasing by 130k in January and unemployment rate easing 0.1pp to 4.3%. The data reinforced market expectations that the Fed will deliver two rate cuts this year, likely starting in the summer, rather than signaling an earlier or more aggressive easing cycle.

Euro area sovereign yields edged lower, while the EURUSD cross held steady near 1.18, after the region's January inflation cooled, with headline inflation falling to 1.7% from 2.0% on lower energy prices and core easing to 2.2% as services inflation moderated. Attention now turns to today’s ECB policy meeting, where rates are expected to remain unchanged.

Central banks took center stage, with a broadly hawkish tilt across major economies. The ECB left the depo rate unchanged at 2.00%, as expected, but highlighted stagflationary risks stemming from the Middle East conflict. Euro area sovereign yields edged higher, as markets now fully price in two rate hikes in 2026, while the euro recovered and equities declined sharply.

Investors kicked off the week on a cautious footing, ahead of the ECB’s meeting later this week, which is widely expected to leave interest rates unchanged (depo rate at 2%), while markets continued to digest Kevin Warsh’s nomination to replace Jerome Powell as Fed Chair. Sentiment was also weighed by the sharp sell-off in precious metals that began late last week.

In yesterday's session, European government bond yields broadly fell after December inflation numbers for Germany and France came in lower than expected, lowering odds of future rate hikes from the ECB. Investors will be attentive to today's release of December CPI in the euro area, looking for more hints on the rate path in the short term.

In yesterday’s session, the US Federal Reserve meeting centered the stage. It raised official interest rates by 50bp up the 4.25%-4.50% target range, a slowdown in the pace of monetary policy tightening, but still a large move by historical standards. Jerome Powell signaled that ongoing interest rate hikes will be necessary to return price stability.

In yesterday's session, German bonds extended their decline, with the 10-year bund yield reaching 2.83%, and the euro appreciated against the dollar as the ECB cut interest rates by 25 basis points to 2.5%. President Christine Lagarde did not pre-commit to setting rates in any direction in the upcoming meetings, and warned of the uncertainty surrounding the effects of the trade war and increased defense spending.

Investors kicked-off the week with a quiet session following last week's heavy-data week, which included US Q1 GDP and euro area inflation. This week, markets' attention will shift back to central meetings. The Fed is expected to hold rates steady in Wednesday, and the BoE is expected to deliver a 25bp rate cut on Thursday.

In the first session of the week, investors traded cautiously ahead of today's key inflation data release in the US and the upcoming central bank meetings in the US (where we expect the Fed to pause its aggressive rate hike cycle) and the euro area (where the ECB will most likely hike rates by 0.25pp).

Risk appetite remained relatively high in the market yesterday as US inflation figures for April came in slightly below expectations at 2.3% YoY, with core inflation holding at 2.8%. Separately, the NFIB survey showed that small business optimism fell moderately in April. Against this backdrop, US Treasury yields were broadly unchanged.

The minutes of the Fed's June meeting showed that the decision to hold interest rates steady in June was not unanimous, and that most officials expected further rate hikes would be necessary, as the dot plot had shown. Also yesterday, US factory orders data for May came in below expectations, but still showed growth.

Global stocks rebounded and sovereign yields continued to decline as investors cemented their expectations for rate cuts ahead of the Fed's next week meeting. The USD weakened moderately across other major currencies and gold prices continued to surge.