The wrap-up of the World Economic Forum in Davos and Donald Trump’s return to Washington brought a noticeable easing of tensions. The threat of 10% tariffs on Europe has been lifted, and the Greenland issue has lost urgency for markets. Against this backdrop, US assets are attempting to finish the week higher, while Europe is showing unexpected resilience despite ongoing domestic political disputes.
The euro is consolidating near $1.17, supported by fresh PMI business activity data that came in above expectations.
🔘Key factor: Manufacturing PMI jumped to 49.4. While this still signals contraction, it clearly marks a bottom—manufacturing has returned to growth for the first time in ten months.
🔘Insight: Divergences within the eurozone are becoming more pronounced. Germany kicked off the year following a growth trajectory, while France is losing momentum amid a political stalemate over the budget.
🔘ECB verdict: Minutes from the December meeting confirmed Christine Lagarde’s “patient” stance. With inflation at 2.8% and economic conditions stable, the ECB sees no urgency to cut rates. The euro remains steady, but lacks clear catalysts for a leap forward.
In January, the UK unexpectedly emerged as a growth leader among developed economies.
🔘Growth factor: The Composite PMI surged to 53.9, the highest reading in 21 months. Following the budget approval, businesses gained clarity and began ramping up investment activity.
🔘Inflation trap: This growth comes at a cost. Companies are raising selling prices at the fastest pace since August 2025 due to rising wage pressures. This poses a challenge for the Bank of England, as renewed inflation risks could force rates to remain elevated longer than markets anticipate.
US markets continue to digest the upward revision of Q3 GDP to an impressive 4.4%, alongside geopolitical developments.
🔘Easing of geopolitical tensions: Trump’s decision to abandon new tariffs against the EU and progress in peace negotiations have restored risk appetite. The Nasdaq 100 has already moved into positive territory for the week, while the S&P 500 (6,926 points) is attempting to close the early-week gap.
🔘Intrigue of the week: Wall Street is actively debating the future leadership of the Fed. Two frontrunners have emerged so far. These are “dovish” candidate Kevin Warsh, who favors rapid rate cuts, and market favorite Rick M. Rieder, Chief Investment Officer of Global Fixed Income for BlackRock. Trump’s eventual choice will largely shape dollar dynamics throughout 2026.
🔘Weekend risk: US strike groups are concentrating in the Middle East. A potential escalation involving Iran could quickly restore the dollar’s status as a safe-haven asset by Monday.
Some analysts estimate gold’s fair value at around $2,500. Compared to current prices, which remain significantly higher, this divergence appears even more pronounced.
🔘Why so expensive: Prices are being driven not by fundamentals, but by fear. Geopolitical uncertainty and expectations of a shift in Fed leadership could propel gold toward $5,000 this year.
🔘Forecast: From a fundamental standpoint, current levels look fragile. Sustaining such prices would require another doubling of geopolitical risk indicators. If Trump’s peace initiatives continue to gain traction, gold could face a fairly deep correction toward its fair-value range.
Bottom line: The week is ending under the banner of “cautious optimism.” Geopolitical threats, namely Greenland and tariffs, have temporarily taken the backseat, allowing macroeconomic factors to take center stage.
Today’s key focus: The latest US PMI releases. If they confirm accelerating growth, the S&P 500 could push to new highs, and the dollar would gain support. That being said, traders should remain alert to the “Sunday factor” in the Middle East. Any flare-up there could wipe out Friday’s optimism entirely.
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