Week in review
- U.S. headline inflation rose to 2.9% y/y, core inflation fell to 3.2% y/y
- China Q4 GDP grew 5.4% y/y, 2024 GDP expanded 5.0% y/y
- Bank of Korea kept policy rate at 3.0%
Week ahead
- Bank of Japan interest rate decision
- Japan inflation
- UK unemployment rate
Thought of the week
The Chinese yuan has been under pressure since the beginning of the year, hovering near its weakest level against the U.S. dollar in the past 15 years. In response, China has implemented several measures in recent weeks to support the currency. These include increasing the issuance of short-term bills and raising the overseas borrowing limit for firms and financial institutions, effectively making it more costly to short the yuan and encouraging capital inflows. While these can provide short-term support, broader fiscal stimulus would offer more structural support, given the suppressed yields in Chinese government bonds and the wide interest rate differential relative to the U.S. Recent economic data suggests an uptick in activity, with Q4 GDP, December retail sales, industrial production, and exports all exceeding consensus estimates, and sustaining this momentum through 2025 will depend on any additional fiscal support announced at the National People’s Congress in March.
Currency and interest rate differential between U.S. and China
USDCNY (lhs), 10-year yield Chinese government bonds over U.S. Treasuries (rhs)
Market data