UK policymakers are maintaining a cautious dovish stance, reinforcing market anticipation of an easing cycle starting in August. Approximately 0.75% in cuts are projected for this year. The committee is particularly cautious about early cuts, emphasizing that while headline inflation is expected to ease towards the target, wage inflation remains excessively high. Officials downplayed the significance of the technical recession, highlighting that the inflation outlook holds more importance for monetary policy than growth. The committee is mindful that the full impact of rate increases has not yet fully permeated the underlying economy.

Simultaneously, the budget on March 6th will shift the spotlight to fiscal policy and its implications for the growth outlook.

In the US, inflation remains the primary driver of monetary policy, and a further moderation is anticipated in the upcoming months, with rate cuts expected to commence in June. The robust performance of the US economy will dictate the extent of rate cuts, with market forecasts adjusted to 0.85% for this year.

In Europe, despite recent data suggesting a peak in wage pressures, policymakers are adamant about not implementing rate cuts before summer. Nevertheless, the market anticipates a pre-emptive cut, possibly as early as April, given the prevailing bleak economic outlook.

On the currency exchanges, the dollar has weakened due to lowered expectations of US rate cuts but remains largely within recent ranges due to a lack of strong market conviction. Next week's data is anticipated to have a limited impact, with interest rate differentials continuing to steer the narrative.