Next week, global financial markets will be bombarded with a flurry of data and policy announcements, with the most attention focused on the preliminary US Q4 GDP figures (February 20th) and the core PCE price index—both considered key indicators of "growth resilience" and "inflation stickiness." The market currently expects the US economy to grow at an annualized rate of 3.0% in the last three months of last year, a slowdown from the previous quarter's 4.4%, but still robust. The Atlanta Fed's GDPNow model even projects a higher 3.7%. If the actual data is close to this level, it will undoubtedly strengthen the Fed's reason to continue its wait-and-see approach and could potentially push short-term interest rate expectations upward again.



Meanwhile, inflation remains a key focus. The US core PCE rose 2.8% year-on-year in November. If the December data only shows a modest decline, it may be insufficient to reverse the Federal Reserve's cautious stance; however, a significant drop could trigger a temporary weakening of the dollar and boost risk appetite. Personal income and spending data released at the same time are also crucial, as consumption is the biggest pillar of US economic growth. If spending momentum weakens, market confidence in a "soft landing" will be shaken.

In addition, manufacturing and real estate-related indicators will be released successively, including durable goods orders, building permits, housing starts, and industrial output. While these data are not as eye-catching as GDP and PCE, they collectively form the puzzle of economic fundamentals and influence traders' judgments on overall trends.

The Federal Reserve's sarcastic remarks have dampened hopes for further interest rate cuts.

Despite market expectations that a cooling labor market would accelerate interest rate cuts, the latest employment data failed to weaken as anticipated, further dampening bets on faster rate cuts. Analysts point out that in the current environment, the probability of another 25 basis point rate cut this year is unlikely to increase significantly, and interest rate pricing is gradually shifting towards a recalibration based on inflation paths and growth performance. If subsequent data remains strong, the expectation of rate cuts throughout the year may even be revised downwards, which would support the US dollar while suppressing the performance of non-US currencies and some risk assets.

The Federal Reserve meeting minutes will be another key focus. While they won't bring about policy changes, their wording may further reveal the true mindset of policymakers. The market will be closely watching for two signals: first, whether they are more confident that inflation is falling; and second, whether there is room for discussion regarding an early shift if the job market deteriorates. If the minutes show that officials remain highly vigilant about inflation and are not in a hurry to deal with the economic slowdown, then the front end of the dollar yield curve may rise again; conversely, if sensitivity to employment risks increases, the window for rate cuts may reopen, giving non-dollar currencies a chance to breathe.

It's worth noting that this "data-dependent" communication strategy turns every important release into a potential catalyst for market movements. Traders closely monitor every change in the numbers, because even minor deviations can be amplified into dramatic price swings.

The yen's comeback and the pound's struggle: the fates of non-US currencies diverge.

The Japanese yen has recently shown unexpected strength on the global currency stage. This is due to both the Bank of Japan's increasingly hawkish stance and the growing concern among regulators about excessive exchange rate volatility. Next week, Japan will release its preliminary fourth-quarter GDP figures, which are expected to show a 0.4% quarter-on-quarter growth, a recovery from the previous 0.6% contraction. If the data exceeds expectations, it will further strengthen market confidence that the Japanese economy can withstand tighter monetary policy, thereby increasing downward pressure on the USD/JPY exchange rate.

Subsequent trade data, machinery orders, the preliminary February PMI, and the January CPI will all provide continuous momentum for the yen's movement. In particular, if the CPI shows that inflation remains sticky, it could further solidify expectations of interest rate hikes, pushing the yen from being a counterweight to influencing other major currency pairs such as the euro and the pound.

In contrast, the pound is facing a severe test. The Bank of England has always paid close attention to wage growth and changes in the unemployment rate, and current data shows that the labor market is easing. If the unemployment rate continues to rise and wage pressures ease, market bets on a 25 basis point rate cut in March may intensify—currently with a probability of about 64%. However, if inflation unexpectedly rebounds in January, it will put the central bank in a dilemma, potentially pushing up UK bond yields and supporting the pound in the short term. Retail sales and preliminary February PMI figures will also be released on Friday, and these data could exacerbate currency market volatility before the weekend.

In the Eurozone, a slight improvement in the preliminary February composite PMI reading compared to the previous month would help the euro maintain its resilience and could even lead to a retest of the 1.20 level. The German business climate survey can supplement this dimension of business confidence, but overall, the euro's movement remains primarily driven by the direction of the US dollar.

Australian and New Zealand interest rates diverge? Australian dollar may benefit.

While the Reserve Bank of Australia (RBA) has not signaled a rate hike, the market has not completely ruled out its future actions – the probability of another rate hike is currently around 20%. If the upcoming January employment data continues to show strong demand, especially with wage growth remaining high, it will increase the tail risk of rising interest rates, thereby providing support for the Australian dollar.

Meanwhile, the Reserve Bank of New Zealand is more likely to hold rates steady. Despite positive employment growth in the fourth quarter, the unemployment rate has risen to 5.4%, providing ample reason for policy caution. If Wednesday's interest rate decision remains unchanged as expected, market attention will turn to subtle changes in the statement's wording. A surprisingly hawkish stance could see the New Zealand dollar challenge technical resistance around 0.6080; a dovish stance could trigger a short-term pullback and drag down cross-currency pairs.

Overall, the main theme next week will remain the interplay between the speed of inflation decline and the resilience of growth. Analysts believe that marginal changes in US dollar interest rate expectations will continue to dominate the directional choices of major currency pairs, while key data from the UK and Japan will provide more concrete clues about relative value.