US CPI and Trump could upset the fragile risk appetite

It’s US CPI Day 

The most important data print of the week - the US inflation report for January - will be released later today. Following last week’s strong job market figures, market participants are anxiously awaiting today’s numbers, which could potentially impact the Fed’s outlook. Economists look for 2.9% and 3.1% year-on-year changes at the headline and core indicators, respectively, which are quite close to the December figures.

However, considering last week’s prices paid components from the ISM manufacturing and services surveys, the one-year inflation expectations of the University of Michigan consumer sentiment survey, and the traditional seasonal adjustments taking place in the January CPI report, there is a non-negligible chance of a significant surprise today. Based on the current fragile risk appetite, a stronger CPI report could prove more damaging for riskier assets but may boost the US dollar.

Powell prepares for the second testimony

Meanwhile, Fed Chairman Powell’s comment at his Senate testimony that “we do not need to be in a hurry to adjust policy stance” appears to have contributed to the upward move in US yields. However, this was simply a repetition of his opening statement following the conclusion of the January 29 Fed meeting.

The focus today shifts to Powell’s testimony at the Committee on Financial Services of the US House of Representatives. Traditionally, the second testimony is a repeat of the Senate appearance and is thus less market moving. However, the CPI report could raise new questions about the Fed’s policy stance, making today’s appearance equally interesting, assuming Powell has not been given a preview of today’s inflation report.

Trump to put his tariffs’ hat on again

Regardless of the outcome of today’s CPI report, US President Trump is expected to criticize the Fed again, especially as there are reports circulating that he is already searching for Powell’s replacement. Before that happens though, and, with the 25% tariff on both steel and aluminum imports going into effect on March 12, more details on the reciprocal tariffs are expected today.

Countries like the ones in the EU, which have higher import/VAT taxes on US imports, have already signaled their willingness to consider adjustments. The US President, though, appears to prefer announcing the trade restrictions first and then discussing solutions with his counterparts. A similar strategy could be on the cards in the case of reciprocal taxes, with risk sentiment potentially taking a significant initial hit. Such an outcome could dent the positive performance recorded by US equity indices this week, although they continue to underperform relative to European equities.

Gold drops from a record high

Following another all-time high, profit-taking has pushed gold lower, with the precious metal trading slightly below the $2,900 level at the time of writing. Gold is already 10% up in 2025, clearly outperforming equities and bitcoin. However, its outlook is mixed following Trump’s recent commentary.

The situation in Gaza could take a turn for the worse, as both Trump and Israeli PM Netanyahu are pushing for the immediate release of all hostages, changing the recent agreement that has produced the current ceasefire. On the flip side, Trump is apparently paving the way for an agreement between Ukraine and Russia.

The Munich Security Conference 2025, taking place on February 14 – 16, could potentially generate headlines, though the most important event is Secretary of the Treasury Scott Bessent’s visit to Ukraine. Trump is trying to ensure that the US will have a commanding role in the post-conflict reconstruction of Ukraine and preferential access to the country’s rich mineral resources.