U.S. equities and bond markets are reflecting a complex interplay between near-term economic resilience and shifting Federal Reserve policy expectations. Although major indices ended lower on Thursday—extending a multi-session losing streak—futures modestly rebounded Friday morning. Investors are now scrutinizing the upcoming ISM Manufacturing Index release and Fed commentary for additional clarity on growth trends and inflation dynamics.

The fixed income arena remains anchored by the 10-year U.S. Treasury yield at approximately 4.55%. Despite hovering below recent highs, persistently hawkish signals from the FOMC—supported by upward revisions to inflation forecasts—have scaled back market expectations to just two rate cuts in 2025, substantially fewer than those envisioned in prior months. Still, questions linger about whether the economic environment could shift sufficiently to justify more aggressive policy easing, as evidenced by the muted rise in core PCE inflation.

In the currency markets, the dollar’s enduring strength above the 109 mark underscores investors’ preference for U.S. assets amid relative economic outperformance and lingering policy uncertainty tied to the incoming Trump administration. Consequently, the greenback’s multi-year highs against the euro, Australian dollar, and New Zealand dollar, as well as multi-month highs against the yen and sterling, highlight diverging monetary policy paths globally. Going forward, institutions may consider maintaining a balanced view that accounts for ongoing rate-trajectory recalibrations, evolving political risks, and the potential for shifts in global demand—all of which can rapidly alter asset valuations and cross-asset correlations.

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