The pound has slipped to a 14-month low against the dollar, driven by concerns that the Federal Reserve will cut interest rates only once this year. The currency dropped as much as 0.8% to $1.211 before a slight recovery.

China's efforts to defend the yuan against a strong dollar have intensified a liquidity squeeze, pushing the seven-day interbank pledged repo rate to its highest level since October 2023. Seasonal cash demands ahead of the Lunar New Year and maturities from a PBOC lending facility are exacerbating the situation, with borrowing costs rising sharply.

The UK is set to gauge investor interest in gilts with a £1 billion sale of 30-year inflation-linked bonds, the first since recent market turmoil. The sale comes amid concerns about government finances and inflation, which have driven yields to decades-high levels.

Treasury yields continued to rise after Friday's job report, with the 10-year yield reaching 4.8% and the 30-year nearing 5%. The moves were caused by concerns around inflation and government debt, and expectations the Federal Reserve will pause its interest rate cuts.

European Central Bank Chief Economist Philip Lane has emphasized the need for a balanced approach to interest rate cuts in 2025 to ensure inflation continues to cool without stalling economic growth. The ECB already lowered rates four times in 2024, and investors expect further cuts this year. "We need to ensure that interest rates follow a middle path," he said. "If interest rates fall too quickly, it will be difficult to bring services inflation under control. But we also don't want rates to remain too high for too long."

Options traders are anticipating significant volatility during the upcoming earnings season, with expectations that S&P 500 stocks will experience an average move of 4.7% in either direction following their earnings reports. This would mark the largest earnings-day movements on record, as reported by Bank of America strategists.

Bank of Japan Deputy Governor Ryozo Himino has indicated that the central bank might consider raising interest rates at its upcoming policy meeting, citing sustained wage growth and clearer US economic policy under President-elect Donald Trump. The BOJ has already ended negative rates and raised the short-term rate to 0.25% this year, and analysts expect another hike as inflationary pressures rise.

The Taiwan dollar is poised to surpass the yuan as Asia's top carry-trade currency due to lower interest rate and currency volatility. The currency has generated the second-highest return among Asian currencies in the past month, and analysts note that Taiwan's central bank is more relaxed about currency fluctuations, benefiting the export-driven economy.

Travis Hill, vice chair of the Federal Deposit Insurance Corp., has emphasized the need to focus on core financial risks rather than process in bank supervision, citing the collapse of Silicon Valley Bank as an example of the latter approach's shortcomings. Hill's stance aligns with a simpler regulatory philosophy, but he acknowledges that addressing interest rate sensitivity and capital requirements will take time, and banks are expected to lobby for a long transition period.

People's Bank of China Governor Pan Gongsheng has expressed confidence in China's economic recovery this year, highlighting measures such as potential interest rate cuts and increased fiscal spending. "China will respond to the world's expectations with responsibility and courage, continuing to play a key role as an engine of global economic growth," Pan said.

AFME is pleased to announce the return of the 4th Annual European Sustainable Finance Conference in Amsterdam on 21-22 May 2025. This flagship event will bring together over 350 senior participants from the sustainable finance sector, including regulators, policymakers, investors, corporates, and advisors from AFME's global membership.