US GDP growth for Q4 2025 was sharply revised down to just +1.4% from 4.4% the prior quarter, weighed by a government shutdown, weaker consumer spending, and softer exports, whilst the core PCE inflation reading came in hotter than forecast at +0.4% month‑on‑month and +3.0% year‑on‑year. The FOMC minutes revealed the first hint in some time that rate hikes—not just pauses—could be back on the table if inflation remains sticky, pushing markets to price in less than 50% odds of a June cut. Meanwhile, the Supreme Court's tariff ruling removed some uncertainty but introduced new fiscal questions around refunds and revenue replacement, sending Treasury yields higher as bond markets repriced US fiscal risk.
FX Market Reactions
The US dollar advanced as Fed hawkishness outweighed soft growth data, with leveraged funds covering some shorts but still maintaining net short USD positions for a fourth consecutive week.
Sterling weakened sharply after UK inflation slowed to 3.0% in January and labour market conditions softened further, bringing forward expectations for Bank of England rate cuts and sending GBP/USD lower.
The euro remained relatively stable, the Swiss franc stayed firm on safe haven flows, and commodity currencies such as AUD and NZD were mixed as investors awaited key labour and inflation prints from Australia and New Zealand.
Commodities Market Reactions
Oil prices surged more than 5% on the week as US–Iran tensions escalated, reintroducing a geopolitical risk premium and pulling Brent back above 71 USD, whilst energy equities rallied in tandem as the sector continued to lead cyclical value's historic 2026 outperformance.
Gold inched modestly higher and remained well supported near record levels on Fed‑independence concerns and fiscal uncertainty, whilst silver exploded higher, surging 9% to 84.25 USD as industrial‑metals demand and speculative flows converged.
Precious and industrial metals have been structurally boosted by AI infrastructure build‑out (copper) and concerns around fiscal deficits and Fed independence (gold), reinforcing the commodities‑led rotation into value sectors.
Indices Market Reactions
US equities posted solid gains: the S&P 500 rose about 1%, the Nasdaq Composite climbed 1.5%, and the Russell 2000 added 0.6%, driven by strength in financials, communications, and industrials, whilst defensives (staples, healthcare) and materials lagged.
Cyclical value stocks notched their strongest‑ever start to a year, powered by energy's commodity‑driven rally and a rotation away from Magnificent Seven and growth names that have been hurt by AI‑disruption fears and stretched valuations.
European equities reached fresh record highs, climbing 2.3% on the week, while UK equities rose 2.0%, both benefiting from sector mix and easier monetary‑policy expectations.
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