Week Ahead: Key Events Impacting FX & Bond Markets

Updated February 25, 2025

Market Focus: U.S. Inflation Data, German Elections & Global Policy Decisions

As markets enter the final week of February, key economic events across the U.S., Europe, and Asia will shape currency and bond movements. The spotlight will be on U.S. PCE inflation data, German elections, and central bank policy decisions in South Korea and Japan.

With the Federal Reserve maintaining a cautious stance on rate cuts, the latest economic indicators will be closely monitored to assess the next steps for global monetary policy.

U.S. Outlook: PCE Inflation in Focus

The Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s preferred inflation measure, is set to be released on Friday, February 23. This follows the latest Consumer Price Index (CPI) report, which showed higher-than-expected inflation. However, analysts suggest that the components feeding into core PCE inflation may indicate less severe inflationary pressures than CPI suggests.

What to Watch:

• Core PCE inflation trends – A softer reading could support expectations for rate cuts in the second half of 2025.

• U.S. consumer spending and confidence – Data from the Conference Board’s Consumer Confidence Index (Tuesday) will provide insight into household sentiment.

• Fourth-quarter GDP revision – The second estimate of U.S. GDP (Thursday) could refine expectations on economic growth.

Market Impact: If inflation continues to ease, expectations for a September 2025 rate cut could solidify. However, if PCE inflation remains elevated, the Federal Reserve may push back its first rate cut further into 2025.

Europe: German Elections & Inflation Trends

The results of Germany’s February 23 elections will be a major focal point for markets. Analysts warn that if traditional parties fail to secure a two-thirds majority, concerns may rise over whether the new government can deliver on fiscal stimulus plans.

Key Economic Events in the Eurozone:

• Germany’s Ifo Business Climate Index (Monday) – Expected to confirm economic sentiment after a recent uptick in confidence.

• German and French Inflation Data (Thursday & Friday) – Provisional inflation readings for February will shape expectations for the European Central Bank’s next moves.

• Fourth-quarter German GDP breakdown (Tuesday) – Provides insight into which sectors are driving or slowing the economy.

Market Impact: Political uncertainty in Germany and softer inflation readings could weigh on the euro (EUR/USD) and impact bond yields in the region.

Asia: Central Bank Decisions & Inflation Updates

Japan:

Tokyo’s core consumer price index (CPI) for February, due Friday, will offer an early signal of nationwide inflation trends. Expectations for another rate hike by the Bank of Japan (BOJ) later in 2025 remain in play, but inflation data will be key in shaping those expectations.

Additional Data:

• Japan’s industrial production and retail sales (Friday) – Will provide further insight into economic strength following a recent recovery in output.

Market Impact: A strong inflation print could reinforce expectations that the BOJ will raise rates again in 2025, supporting the yen (USD/JPY).

South Korea:

The Bank of Korea (BoK) policy meeting on Tuesday is widely expected to result in a 25 basis-point rate cut to 2.75 percent, as the central bank looks to support slowing economic growth.

Market Impact: A rate cut could weigh on the Korean won (KRW), particularly amid ongoing uncertainty over U.S. trade policy and global tariff risks.

Other Global Events to Watch

• Canada: Fourth-quarter GDP report (Friday) will indicate if strong retail sales in December translated into economic expansion.

• United Kingdom: A quiet data week, with only the Nationwide house price index (Friday) expected.

• Switzerland: Fourth-quarter GDP data (Thursday) will show the economy’s momentum heading into 2025.

• China: February PMIs (March 1) will be closely watched for signs of recovery in manufacturing and services following weak January data.

Market Outlook: What to Expect?

1. U.S. Inflation & Fed Policy – A softer PCE reading could reinforce bets on a September rate cut, while sticky inflation could push rate cuts into late 2025.

2. Political Risks in Europe – Germany’s elections may impact euro (EUR/USD) sentiment if political uncertainty rises.

3. Asian Central Banks – BoJ rate hike expectations and BoK rate cuts will shape movements in the Japanese yen (JPY) and Korean won (KRW).

With markets adjusting to inflation risks, trade policy shifts, and global central bank decisions, investors should prepare for increased volatility in FX and bond markets in the coming week.