US dollar edges lower as China tariffs kick in

NEW YORK, Feb 4 (Reuters) – The US dollar edged lower on Tuesday as President Donald Trump’s tariff threats were interpreted more as a negotiating tactic rather than an end goal, a day after he suspended planned measures against Mexico and Canada.

However, the new Trump administration imposed additional 10% tariffs on imports from China effective from early Tuesday and currency analysts said they expected high sensitivity to tariff developments and volatility to persist.

The US dollar index, a measure of the value of the greenback relative to a weighted basket of six major foreign currencies, was down 0.56% at 107.97 while the Canadian dollar was weaker and the Mexican peso was stronger.

“We’re still looking at these 10% tariffs on China and China’s retaliation, which is going to add some risk premium back into the market,” said Helen Given, FX trader at Monex USA. “We’ll see if there’s any sort of negotiation on the back end that might tamp these down as we saw with Mexico and Canada. But as it looks right now, the trade war with China is back up and running.”

The euro rose slightly, with Washington warning that the European Union may be next in line for trade levies, which are widely expected to push up US inflation, supporting the dollar by keeping US interest rates higher for longer.

Beijing on Tuesday imposed tariffs on some US imports in a swift response to new US duties on Chinese goods, raising the stakes in a showdown between the world’s top two economies.

“It suggests that China is wary of pushing back too hard against Trump’s latest tariffs and is leaving the door open for future negotiations,” said Lee Hardman, senior currency analyst at MUFG.

The Chinese yuan edged up 0.23% to 7.287 per dollar in offshore trading. There is no official yuan trading until Wednesday, with mainland markets still closed for Lunar New Year festivities.

The Australian dollar AUD=D4, which often acts as a liquid proxy for the yuan because the Australian economy is highly exposed to China, rose 0.5% to USD 0.626, well above Monday’s low of USD 0.6085, the weakest level since April 2020.

EURO LOWER

The euro rose 0.37% to USD 1.038, with market participants watching parity.

Several analysts recently said that US tariffs would have a deflationary effect on the euro area.

“While the prospects for wider across-the-board tariffs on the EU (are) now highly uncertain, to the extent that tariff back-and-forth continues, an environment of prolonged trade uncertainty should weigh on the Euro in and of itself,” Goldman Sachs analysts said in a research note.

The Canadian dollar lost 0.81% to C$1.43 against its US counterpart, following a sharp rebound from a low of C$1.4792 on Monday, the weakest level since 2003.

The Mexican peso rose 1.06% to 20.546, after jumping over 1.5% the day before.

The US dollar was nearly up 0.3% at 154.290 yen, with the Japanese currency seen as a safe-haven currency and the greenback less appealing after recent rises.

(Reporting by Hannah Lang in New York; additional reporting by Stefano Rebaudo; Editing by Marguerita Choy, Bernadette Baum and Sandra Maler)

Gold hits record high as investors flock to safe-haven amid tariff war

Gold prices regained an all-time high on Tuesday, driven by investors seeking the safe-haven asset after China retaliated with tariffs on the US in response to President Donald Trump’s tariffs.

Spot gold gained 1.1% to USD 2,844.56 per ounce as of 01:40 p.m. ET (1840 GMT), after hitting a record high of USD 2,845.14 earlier in the session.

US gold futures settled 0.7% higher at USD 2,875.80.

“The tariff news came out like it did overnight; I think right now that’s the main driver than any other thing and data that comes out today, (but) I think it’s going to be overshadowed by the tariff news,” said Bob Haberkorn, senior market strategist at RJO Futures.

“The dollar was strong going into the week here, but with a lower dollar, that also definitely helps the price of gold,” Haberkorn said.

The dollar fell 0.9%, making gold less expensive for other currency holders.

China imposed tariffs on US imports, swiftly responding to new US duties, escalating the trade war between the world’s top two economies even as Trump offered reprieves to Mexico and Canada.

The Trump administration’s plans for trade tariffs come with inflation risks, three Fed officials warned on Monday, with one arguing that uncertainty over the outlook for prices calls for slower interest rate cuts than otherwise.

Data showed US job openings in December fell to 7.6 million, falling short of the consensus estimate of 8 million, indicating potential economic slowdown.

Bullion is traditionally considered a hedge against both inflation and geopolitical uncertainty, but higher rates reduce the non-yielding asset’s appeal.

Given the disruptive nature of the current US administration creating market uncertainty, coupled with central banks possibly increasing gold purchases to diversify from US dollar holdings, gold prices could reach USD 3,000 this year, said Jim Wyckoff, a senior market analyst at Kitco Metals.

Investors’ focus now turns to the ADP employment report on Wednesday, the payrolls report on Friday, and speeches from several Fed officials.

Spot silver rose 2.5% to USD 32.33 per ounce. Platinum gained 0.4% to USD 967.94, and palladium fell 1.3% to USD 994.

(Reporting by Anmol Choubey in Bengaluru; Editing by Tasim Zahid, Nick Zieminski, and Mohammed Safi Shamsi)

Tariffs, earnings eyed as China reopens

First Mexico reached agreement with the United States to put US tariffs on ice, then Canada did likewise, leaving the world’s attention on China. Can a similar rapprochement between Beijing and Washington be achieved?

After China retaliated on Tuesday to sweeping US tariffs with targeted tariffs of its own, and put several US companies, including Google, on notice for possible sanctions, a sudden detente seems unlikely.

This will keep trade tensions bubbling away in Asia, even though markets globally have welcomed Washington’s temporary reprieves with Mexico and Canada. A proposed telephone call on Tuesday between US President Donald Trump and Chinese President Xi Jinping didn’t take place, suggesting relations remain cool at best.

China’s levies don’t come into effect until Feb. 10, however, leaving time for Trump and Xi to hammer out a ‘deal’.

Chinese onshore markets reopen on Wednesday after the Lunar New Year holiday. All asset classes will be under intense scrutiny, none more so than the currency and the central bank’s daily fixing of the dollar/yuan exchange rate.

It was last fixed at 7.1698 on Jan. 27, and the pressure for a higher fix – i.e., a weaker yuan – could be strong after the offshore dollar/yuan rate hit an all-time high of 7.3765 on Monday. It has since eased back to around 7.28, but that’s still comfortably higher than the central bank’s last official fix over a week ago.

Chinese stocks listed in Hong Kong have shrugged off the US-Sino trade war with surprising ease, as investors have loaded up on artificial intelligence and electric vehicle shares. The China-focused index rose 3.5% on Tuesday to a three-month high, and Hong Kong tech shares leaped 5%. Will that optimism spill over to the onshore market?

Most Asian equity benchmarks rose solidly on Tuesday, and the tech-heavy Nasdaq’s strong advance lifted Wall Street too. Surprisingly soft US jobs opening figures on Tuesday pushed the dollar and Treasury yields lower, which could also support risk appetite in Asia on Wednesday.

But while US money markets are still pricing in two quarter-point rate cuts from the Fed this year, the inflationary cloud from US tariffs is darkening. Economists at Morgan Stanley on Tuesday changed their Fed call to only one rate cut this year, in June, from two, warning: “The path for monetary policy in 2025 remains highly uncertain.”

Among the US companies that reported earnings after the market close on Tuesday was ‘Magnificent 7’ constituent Alphabet. Google’s parent company missed revenue estimates, sending its shares down more than 1% in after-hours trading. If that is sustained, it could weigh on sentiment in Asia on Wednesday.

Here are key developments that could provide more direction to Asian markets on Wednesday:

– China “unofficial” services PMI (January)

– China reserve requirements ratio

– Japan corporate earnings, including Toyota

– Indonesia GDP (Q4)

(By Jamie McGeever, editing by Deepa Babington)

Europe’s AI bulls pin hopes on ‘Jevons Paradox’ after DeepSeek rout

LONDON – Artificial intelligence bulls in Europe are dusting off a 160-year-old economic theory to explain why the boom in the sector’s stocks may have further to run, despite the emergence of China’s cheap AI model DeepSeek.

Tech stocks worldwide plunged on Jan. 27 after the launch of DeepSeek – apparently costing a fraction of rival AI models and requiring less sophisticated chips – raised questions over the West’s huge investments in chipmakers and data centers.

At the heart of the selloff was US advanced chipmaker and AI poster-child Nvidia, which lost 17% of its value, or close to USD 600 billion, in the largest one-day drop in market capitalization for any company on record.

Since then, tech stocks have rebounded, with European markets hitting new highs, and a 19th century economic theory is suddenly on everyone’s lips: the Jevons Paradox.

Named after English economist William Stanley Jevons, it posits that when a resource becomes more efficient to use, demand can increase – rather than decrease – as the price to use the resource drops.

“I hadn’t discussed it until Monday (last week), and then suddenly it’s everywhere,” said Helen Jewell, Chief Investment Officer at BlackRock Fundamental Equities, EMEA.

“This paradox highlights one of the uncertainties at the moment,” said Jewell, flagging that a key question for European stock-pickers is whether data centers and their suppliers will be less in demand.

“One of the big question marks from (last) Monday’s news is how much energy is going to be needed for the AI revolution?”

The selloff hit direct and indirect AI plays alike. Dutch semiconductor equipment maker ASML ASML.AS, and sector peers ASMI ASMI.AS and BE Semi BESI.AS all fell 7%-12% on Jan. 27, before recouping losses later in the week, as did Siemens Energy ENR1n.DE, which provides hardware for AI infrastructure.

“Jevons Paradox strikes again!” Microsoft chief executive Satya Nadella said in a post on X.

“As AI gets more efficient and accessible, we will see its use skyrocket, turning it into a commodity we just can’t get enough of.”

THE NEW BUZZWORD

On Friday, Tomasz Godziek, portfolio manager of the Tech Disruptors fund at J. Safra Sarasin Sustainable Asset Management, said lower AI costs could exemplify the Jevons Paradox.

“Ultimately, this could fuel a new wave of AI investment, creating fresh opportunities, particularly in software and inference technologies,” Godziek said.

Portfolio managers at Thematics Asset Management, an affiliate of Natixis IM, cited Jevons Paradox as one reason they believe demand for AI chips may remain healthy.

Mark Hawtin, head of the Liontrust global equities team, also said his investment thesis on AI was reinforced by the news on Jan. 27, flagging the paradox.

“Everyone has become an expert on Jevons Paradox,” said Aviva Investors portfolio manager Kunal Kothari, who manages a UK equity income fund with around 2 billion pounds (USD 2.5 billion) in assets.

“The falling cost of improved productivity through GenAI will likely benefit companies in the UK market generally, as they will predominantly be consumers of these technologies,” he added, pointing to data and software names like RELX, LSEG, Experian, and Sage as likely beneficiaries.

DATA CENTER NEEDS IN FOCUS

The need for data centers and the vast amounts of power required to run them has driven a lot of AI investing in Europe already, given that there aren’t any homegrown rivals to the likes of Nvidia, whose shares have rocketed by about 200% in under two years.

“There is an implicit assumption that the adoption and usage of AI would require increasingly more chips, and more data center capacity and power consumption,” said Kasper Elmgreen, CIO of fixed income and equities at Nordea Asset Management.

“What DeepSeek has done is to question what is required from that route and what can be delivered by making much better software.”

Not everyone is convinced of the new rationale, including Jordan Rochester, head of FICC strategy at Mizuho EMEA.

“Whilst many Nvidia optimists pointed to Jevons Paradox to help them sleep better at night … it was less convincing in the short term after what has been a meteoric rise in Nvidia shares,” he wrote in a note.

(USD 1 = 0.8122 pounds)

(Reporting by Lucy Raitano. Editing by Amanda Cooper and Mark Potter)

US recap: Dollar trims advance after tariffs delayed

The dollar index pared gains on Monday after Mexican President Claudia Sheinbaum and President Trump agreed to delay implementing tariffs, easing concerns about a North American trade war. Mexico pledged to reinforce its northern border with 10,000 National Guard members.

Trump later qualified these reports by saying that nobody is out on tariffs and that there will be future negotiations with Mexico. He also said that he had a good talk with Canadian Prime Minister Trudeau, that the US has not been treated well by Canada, and that he will speak to China over the next 24 hours.

In US data, January manufacturing PMI moved back into growth territory with the prices paid component higher than forecast and the employment gauge moving into expansion territory.

Boston Federal Reserve President Susan Collins said tariffs may drive up inflation, while noting there’s a lot of uncertainty and no urgency on the part of the US central bank to change the direction of monetary policy. Atlanta Fed president Raphael Bostic said uncertainty around tariffs and other policies have made it difficult for the Fed to anticipate how the economy will evolve and made a cautious approach to further rate cuts appropriate.

EUR/USD remained down about 0.8% at 1.0285 on concerns that the European Union may be the next target of tariffs. The pair sank to as low as 1.0125 earlier on Monday, its lowest EBS level since November 2022. European leaders warned that Trump’s threat to expand tariffs to the EU risked igniting a trade war that would harm consumers on both sides of the Atlantic.

GBP/USD reversed nearly all its loss after the agreement between the US and Mexico though an expected Bank of England rate cut on Thursday remains a headwind for the pair.

USD/JPY found support at 154 though lower Treasury yields and softness in tech stocks saw its recovery stall below 155. Prime Minister Shigeru Ishiba is set to have discussions with Trump later this week.

Treasury yields were mixed as the curve flattened sharply. The 2s-10s curve was down about 6 basis points to +26.7bp.

The S&P 500 fell 0.67% fueled by weakness in tech shares.

Oil was little changed after OPEC+ agreed to stick to its policy of gradually raising oil output from April.

Gold rose 0.65% due to the tariff uncertainty while copper advanced 1.09%

Heading toward the close: EUR/USD -0.81%, USD/JPY -0.18%, GBP/USD +0.06%, AUD/USD -0.55%, DXY +0.63%, EUR/JPY -1.00%, GBP/JPY -0.16%, AUD/JPY -0.73%.

(Editing by Burton Frierson; Reporting by Robert Fullem)

Gold hits record high as Trump tariffs spur safe-haven buying

Gold prices hit an all-time high on Monday, bolstered by safe-haven inflows after US President Donald Trump’s tariffs on Canada, China and Mexico added to concerns of inflation that would dent economic growth.

Spot gold rose 0.8% to USD 2,818.99 per ounce by 01:45 p.m. ET (1845 GMT), after hitting a record of USD 2,830.49 earlier in the session.

US gold futures settled 0.8% higher at USD 2,857.10.

Despite the usual dampening effect of a strong dollar on the gold market, prices have been rallying due to the safe-haven demand driven by uncertainty surrounding Trump’s tariffs, said David Meger, director of metals trading at High Ridge Futures.

The 25% tariffs imposed by Trump on Canadian and Mexican imports from Tuesday, along with a 10% charge on Chinese goods, fuelled fears of a trade war that could slow global growth and feed inflation.

Canada and Mexico ordered retaliatory measures while China said it would challenge the tariffs at the World Trade Organization and take unspecified countermeasures.

However, Trump announced a month-long pause on tariffs the US had slapped on Mexico.

The market is not fully convinced about the extent of the trade war, Bart Melek, head of commodity strategies at TD Securities, said.

“We haven’t seen a complete response from gold and if this trade war continues for a considerable period, it could lead to significantly higher gold prices down the road,” Melek added.

Gold is often considered as a safe-haven investment during periods of economic or geopolitical instability.

J.P. Morgan said bearish contagion from equities could weigh on gold in the near term, but disruptive tariffs were a medium-term bull case for bullion.

Investors await data this week on US job openings, the ADP employment report and the US employment report to gauge the health of the US economy.

Meanwhile, bullion banks are transporting gold from Asian trading hubs like Dubai and Hong Kong to the US to profit from the unusually high US gold futures premium over spot prices.

Spot silver rose by 0.8% to USD 31.56 an ounce, platinum lost 1.5% to USD 963.40 and palladium rose 0.5% at USD 1,012.85.

(Reporting by Anmol Choubey in Bengaluru; Editing by Barbara Lewis, Shailesh Kuber, and Maju Samuel)

Rebound eyed as tariff respite softens initial blow

First the stick, then the carrot.

Investors breathed a sigh of relief on Monday after some of US President Donald Trump’s sweeping tariffs announced over the weekend were put on ice, allowing stocks and non-dollar currencies to claw back losses and regain some poise.

This should help bring some degree of calm to markets in Asia on Tuesday, assuming there is no left-field announcement from Trump in the next few hours. Given the events of the few days though, that may be a risky assumption.

The steep fall across Asian markets on Monday was understandable after Trump on Saturday slapped 25% import tariffs on goods from Mexico, the same levy on non-energy imports from Canada and 10% duties on purchases from China.

US markets were then whiplashed later in the day after Trump and Mexican President Claudia Sheinbaum said the Mexican tariffs would be put on hold for a month while talks between the two countries towards a “deal” got underway.

There’s unlikely to be any official reaction from Beijing to the unilateral tariffs before Wednesday, when China reopens after the Lunar New Year holiday. China’s UN envoy Fu Cong did say on Monday, however, that China could be forced into taking countermeasures.

One option many observers say Beijing may pursue is allowing its currency to fall significantly, which would offset the tariffs. Pressure on the yuan could be pretty intense when trading reopens later this week – the offshore yuan traded in Hong Kong hit a record low against the dollar on Monday before clawing back some of these losses.

Asian stocks got beaten down pretty badly on Monday. The MSCI Asia ex-Japan index, the Nikkei 225, and other major benchmark indices posted their biggest declines in several months, but Japanese futures are pointing to a rebound of more than 1% on Tuesday.

For what it’s worth, market expectations for US interest rates this year have not budged much at all. Investors still expect two more quarter-point cuts, the first coming in July rather than June.

US Treasury yields fell on Monday, surprising some analysts who would have expected the opposite reaction due to the expected inflationary impact of tariffs. A lower dollar and US bond yields should bode well for Asia on Tuesday.

Markets in Asia could get some direction from Japan, where the corporate reporting season is underway. The list of companies releasing results on Tuesday include heavyweights Panasonic, Nintendo, Mitsui, Mitsubishi UFJ, and Sumitomo.

Here are key developments that could provide more direction to markets on Tuesday:

– US tariff fallout

– Japan corporate earnings

– Offshore Chinese stocks, yuan trading in Hong Kong

(By Jamie McGeever)

UPDATE 12-Oil mixed as Trump restores pressure on Iran, tariff drama caps prices

Trump reimposes ‘maximum pressure’ on Iran

Trump in no hurry to speak with Chinese President Xi Jinping

US tariffs on China take effect

China counters with 10% tariffs on crude, coal and LNG

Trump pauses tariffs on Mexico, Canada for a month

Updates with U.S. oil stocks data from API in final paragraphs

By Georgina McCartney

HOUSTON, Feb 4 (Reuters) – Oil prices diverged at settlement on Tuesday amid tariff drama between Washington and Beijing, and after U.S. President Donald Trump restored his “maximum pressure” campaign on Iran, in a bid to drive Iranian oil exports to zero, per a U.S. official.

Trump signed the presidential memorandum ahead of his meeting with Israeli Prime Minister Benjamin Netanyahu, ordering the U.S. Treasury secretary to impose “maximum economic pressure” on Iran, including sanctions and enforcement mechanisms.

U.S. West Texas Intermediate crude CLc1 settled down 46 cents, or 0.63%, at $72.70 a barrel.

Global benchmark Brent crude futures LCOc1 settled up 24 cents, or 0.32%, to $76.20.

Oil came under pressure early as new 10% U.S. tariffs on Chinese imports took effect on Tuesday, spurring retaliatory tariffs by Beijing. At its session low, U.S. crude was down more than 3%, the lowest since late December.

Trump had driven Iran’s oil exports to near zero during his first term after reimposing sanctions. They rose under former President Joe Biden’s tenure as Iran succeeded in evading sanctions.

Iran, the third-largest producer in the Organization of the Petroleum Exporting Countries, extracts about 3.3 million barrels of oil per day, or around 3% of global output.

“The reason why oil was down near the lower end of the trading range was the China retaliation, and it went back up because of the ‘maximum pressure’ on Iran,” said Phil Flynn, analyst at Price Futures Group.

TARIFF DRAMA

Traders had been eyeing efforts to schedule a call between Trump and Chinese President Xi Jinping, but the U.S. president said on Tuesday he was in no hurry to speak to his Chinese counterpart.

Trump said “that’s fine” when asked about China’s decision to issue retaliatory tariffs on U.S. imports.

Earlier, Trump trade adviser Peter Navarro had said the two leaders would speak, suggesting to investors there was scope for China to receive a temporary reprieve like Trump granted to Mexico and Canada on Monday.

“Oil was down on the China retaliation, I think it’s the expected Trump-Xi call that brought us back up, and we kind of know how those go now, in terms of walking this all back,” said John Kilduff, a partner at Again Capital in New York.

On Monday, Trump suspended his threat of steep tariffs on Mexico and Canada, agreeing to a 30-day pause in return for concessions on border and crime enforcement.

Ongoing trade tensions between the U.S. and China may dampen demand for oil, further pressuring prices.

“The tit-for-tat measures out from China may not stop at just the 10% tariffs on crude oil from the U.S., which can also see a deliberate attempt to weaken the yuan if the U.S. fires back with more tariffs on China exports to the U.S.,” said Kelvin Wong, senior market analyst at OANDA.

“Overall such actions are likely to give rise to a stronger U.S. dollar that in turn weakens … oil prices, given that OPEC+ members are still on track to increase oil supply gradually from April.”

China’s 2024 crude oil imports from the U.S. accounted for 1.7% of its total crude imports, customs data shows.

“The Chinese are smart targeting crude oil and liquefied natural gas, because that’s effectively going to knock them out of the U.S. market as you’re adding $5-$7 a barrel, depending on pricing and that’s just not competitive,” said Kilduff.

Meanwhile, U.S. crude oil and gasoline stocks rose last week while distillate inventories fell, market sources said, citing American Petroleum Institute figures.

Crude stocks rose by 5.03 million barrels in the week ended Jan. 31, the sources said on condition of anonymity. Gasoline inventories rose by 5.43 million barrels, and distillate stocks fell by 6.98 million barrels, they said.

(Reporting by Georgina McCartney in Houston, Katya Golubkova in Tokyo and Trixie Yap in Singapore and Arunima Kumar in Bengaluru; Additional reporting by Florence Tan and Siyi Liu; Editing by Rod Nickel and Stephen Coates)

((Georgina.McCartney@tr.com))

Tech stocks help Nikkei eke out small gain

TOKYO – Japan’s Nikkei share average closed slightly higher on Friday as technology stocks tracked Wall Street’s overnight gains, while a stronger yen weighed on market sentiment and US tariff worries lingered.

The Nikkei rose 0.15% to 39,572.49 to post its third straight session of gains. It, however, fell 1% for the week in its fourth weekly drop in five.

The broader Topix gained 0.24% to 2,788.66 on Friday.

Chip-making equipment maker Tokyo Electron rose 3.33% to provide the biggest boost to the Nikkei.

Fujikura, which makes fibres used by data centres and is a gauge for AI-related investments, jumped 4%.

“Gains in Japanese equities were limited as the yen strengthened and the market was also concerned about US President Donald Trump’s tariff policy and its impact on Japanese firms,” said Kentaro Hayashi, a senior strategist at Daiwa Securities.

Trump has said Feb. 1 would be the date that he imposes 25% tariffs on imports from Canada and Mexico.

The yen was on track for its best monthly start to the year since 2018 on Friday, helped by the view that the Bank of Japan (BOJ) is likely to keep raising rates this year while its global peers elsewhere look to ease policy.

A stronger Japanese currency tends to hurt shares of exporters, as it decreases the value of overseas profits in yen terms when firms repatriate them to Japan.

“Although the market was not totally pessimistic. Investors became selective and bought stocks with a positive outlook and returns,” Hayashi said.

NEC surged 18% after the computer maker raised its annual operating profit forecast and announced a 5-for-1 stock split.

Among losers, scandal-hit Fuji Media fell 4% after the television network operator slashed its annual net profit forecast by two-thirds citing a sharp drop in advertising revenue.

Truck maker Hino Motors tumbled 12% to become the worst percentage loser on the Nikkei.

(Reporting by Junko Fujita; Editing by Subhranshu Sahu)

Yields rise as White House says tariffs will start on Saturday

US Treasury yields rose on Friday, a day ahead of new US tariffs due to be levied on imports from Mexico, Canada, and China, and as traders weighed data showing strong consumer spending and a moderate increase in inflation in December.

President Donald Trump on Saturday implemented tariffs of 25% on Canadian and Mexican imports and 10% on Chinese goods with immediate effect, White House spokesperson Karoline Leavitt said on Friday.

Uncertainty over the impact of tariffs is muddying the outlook on the economy, with details on the implementation, including whether there will be exemptions, also unsure.

“There’s a lot of uncertainty about tariffs and really what comes next on that front,” said Gennadiy Goldberg, head of US rates strategy at TD Securities in New York.

The 2-year note yield, which typically moves in step with Fed interest rate expectations, was last up 3.5 basis points on the day at 4.232%.

The yield on benchmark US 10-year notes rose 5.9 basis points to 4.571%.

The yield curve between two-year and 10-year notes steepened by around 2 basis points to 33.7 basis points.

Yields briefly jumped earlier on Friday after data showed that consumer spending, which accounts for more than two-thirds of US economic activity, beat estimates with a 0.7% jump during December.

Meanwhile, the core personal consumption expenditures (PCE) price index rose 0.2% last month, in line with economists’ expectations, for an annual gain of 2.8%. The headline PCE price index rose 0.3% last month for an annual gain of 2.6%.

“The very strong personal income spending data continues to suggest that the consumer remains resilient. At the same time, you do have inflationary pressures continuing to fade,” Goldberg said. “It really underscores that the Fed can keep rates on hold, at least for the next meeting or so if data like this continues.”

Fed Chairman Jerome Powell said on Wednesday that the US central bank wants to see further progress in inflation before cutting rates, but also expressed confidence that it remains on the right path to ease back closer to the Fed’s 2% annual target.

Chicago Fed President Austan Goolsbee said Friday’s inflation data was a bit better than expected and gives him comfort that inflation is on a path to the 2% target, adding that he still expects the US central bank’s policy rate to be “a fair bit” lower in 12 to 18 months.

Fed governor Michelle Bowman said on Friday she still expects declining inflation to allow further interest rate cuts this year, but feels rising wages, buoyant financial markets, geopolitical risks, and upcoming administration policies could slow the process and keep price pressures elevated.

The breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) rose above 2.60% to its highest since March 2023 and was last at 2.596% after closing at 2.535% on Thursday. The 10-year TIPS breakeven rate was last at 2.429%, indicating the market sees inflation averaging above 2.4% a year for the next decade.

Annual inflation data should cool in the coming months due to favorable comparisons with hot readings from a year ago, weighing in favor of lower interest rates, said Stan Shipley, macro research analyst at Evercore ISI.

The Treasury will also release its refunding estimate for the coming quarters next week, with its broad borrowing estimate due on Monday and its more detailed estimate due on Wednesday.

(Reporting by Karen Brettell in New York and Douglas Gillison in Washington, Editing by Nick Zieminski, Deepa Babington, Will Dunham, and Matthew Lewis)

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