KUWAIT: With an official announcement expected as early as April 2, President Trump indicated plans to impose tariffs of approximately 25 percent on imports of automobiles, semiconductors, and pharmaceuticals, which could potentially increase further over time. This would significantly expand his ongoing trade war. Trump had previously announced 25 percent tariffs on steel and aluminum, set to take effect in March. He emphasized giving companies time to establish operations in the US to avoid tariffs. The proposed auto tariffs could have a major impact, as nearly half of US vehicle sales in 2023 were imports. It remains unclear whether the tariffs would target specific countries or apply broadly, and whether vehicles from Canada and Mexico under a free trade agreement would be exempt.

FOMC meeting minutes

The FOMC minutes released on Wednesday revealed that Federal Reserve policymakers remain cautious about adjusting interest rates, emphasizing the need for more evidence of sustained disinflation before considering cuts. While some members acknowledged that policy could be eased if the labor market weakens or inflation returns to 2 percent faster than expected, many agreed that maintaining a restrictive stance is necessary if inflation remains elevated. The minutes also highlighted upside risks to inflation, including trade and immigration policy shifts, geopolitical disruptions, and strong household spending, reinforcing the Fed’s patient approach in keeping rates elevated.

US PMI

The US PMI Composite Output Index fell to 50.4 in February from 52.7 in January, marking a 17-month low, according to S&P Global’s preliminary report. The services sector contracted for the first time in over two years, with the Services PMI dropping to 49.7. In contrast, manufacturing showed strength, with output reaching an 11-month high of 53.8 and the Manufacturing PMI rising to an eight-month high of 51.6. Businesses cited political uncertainty, federal spending cuts, and tariffs as key factors weighing on demand and optimism. Chris Williamson, chief business economist at S&P Global, noted that the optimistic outlook from earlier in the year has faded. Inflationary pressures also grew in manufacturing due to tariff-related cost increases, while competition in services limited price growth. The US Dollar Index closed the week at 106.64.

Canada inflation

Canada’s annual inflation rate rose slightly to 1.9 percent in January, up from 1.8 percent in December, driven by higher gasoline and natural gas prices, which offset the impact of a temporary sales tax break. The core consumer price index (CPI) measures, which have been slower to decline, also increased. January’s inflation marked the sixth consecutive month at or below the Bank of Canada’s 2 percent target midpoint within its 1 percent-3 percent range. However, persistent underlying price pressures have lowered expectations for an interest rate cut in March, with market predictions for no rate cut rising to 66 percent, up from 56 percent before the inflation data release.

A government sales tax holiday from mid-December to mid-February on items like food, beverages, restaurant meals, and children’s clothing helped ease inflation. Food prices fell 0.6 percent year-over-year, marking the first annual decline since May 2017, driven by a 5.1 percent drop in restaurant food prices. Without the tax holiday, inflation would have reached 2.7 percent in January, compared to 2.3 percent in December without the tax relief. The USD/CAD currency pair closed the week at 1.4220.

Eurozone PMI

Business activity in the eurozone showed minimal growth in February, as demand declined more sharply and a slight expansion in services barely offset the ongoing slump in manufacturing, according to a survey. HCOB’s preliminary composite Purchasing Managers’ Index (PMI) for the euro zone, compiled by S&P Global, remained at 50.2—unchanged from January and just above the 50 threshold that separates growth from contraction. Analysts had expected a slight increase to 50.5. The services sector PMI fell to 50.7 from 51.3 in January, missing the forecast of 51.5. Meanwhile, the manufacturing PMI, which has remained below 50 for nearly three years, rose to 47.3 from 46.6, surpassing expectations of a smaller rise to 47.0. The EUR/USD currency pair closed the week at 1.0458.

UK inflation

UK inflation rose 3 percent year-over-year (YoY) in January, surpassing the 2.8 percent forecast and accelerating from December’s 2.5 percent increase, while core CPI climbed 3.7 percent, signaling persistent price pressures. Despite a -0.1 percent month-over-month (MoM) decline, which was smaller than the expected -0.3 percent, services inflation surged to 5 percent, reflecting continued cost increases in the sector. The data complicates the Bank of England’s (BoE) rate-cut outlook, as inflation remains well above its 2 percent target, potentially delaying policy easing. Meanwhile, GBP/USD held steady around 1.2600, as traders assessed the implications of the inflation surprise on future BoE decisions.

The UK’s S&P Composite Purchasing Managers’ Index (PMI) for February edged down slightly to 50.5 from 50.6 in January, remaining just above the 50 mark that signals growth. However, employment saw a significant drop, falling to 43.5 from 45.3, its lowest level since November 2020, or since the 2007-08 financial crisis if excluding the COVID period. Chris Williamson, chief business economist at S&P Global Market Intelligence, noted that one-third of businesses attributing staff cuts linked them directly to policies from last October’s budget. While the services sector PMI rebounded to 51.1 from 50.8 in January, the manufacturing PMI fell to a 14-month low of 46.4, with global uncertainties adding to concerns about the UK economy. The GBP/USD currency pair closed the week at 1.2630.

RBA reduces cash rate

The Reserve Bank of Australia (RBA) cut its cash rate by 25 basis points to 4.1 percent in February, marking the first reduction since 2020 amid slowing inflation. The central bank expressed confidence that inflation is stabilizing within its 2–3 percent target range but highlighted economic uncertainties, including weak private demand and concerns over household spending sustainability. While aligning with the global easing trend ahead of Australia’s mid-May federal election, the RBA remains cautious about further rate cuts, citing geopolitical risks and policy uncertainties. The AUD/USD currency pair closed the week at 0.6355.

The Reserve Bank of New Zealand (RBNZ) reduced its benchmark interest rate by 50 basis points to 3.75 percent on Wednesday, signaling more cuts ahead as inflation slows and the economy struggles. Governor Adrian Orr indicated that the bank now anticipates a lower terminal rate than previously projected in November, with two additional 25-basis point cuts expected in April and May, depending on economic developments. This updated rate outlook aligns closely with market expectations, emphasizing the RBNZ’s dovish stance compared to the more cautious policies in Australia and the US. The NZD/USD currency pair closed the week at 0.5740.

PBOC keeps rates unchanged

The People’s Bank of China (PBOC) kept its benchmark lending rates unchanged for the fourth consecutive meeting on Thursday, meeting market expectations. The one-year loan prime rate (LPR), which influences corporate and household loans, remained at 3.1 percent, while the five-year LPR, a key mortgage benchmark, stayed at 3.6 percent. Both rates are at record lows following cuts in July and October. This decision follows comments from the US Federal Reserve chair, indicating no urgency to lower interest rates. The USD/CNY currency pair closed the week at 7.2501.

Kuwait

Kuwaiti dinar

USD/KWD closed last week at 0.30870.