Investor and forex trader attention is focused on the February labor market report. The unemployment rate rose to 4.4%, while analysts had expected it to remain at 4.3%. Nonfarm payrolls declined by 92,000 instead of the anticipated increase of 58,000, while the annual growth rate of average hourly earnings accelerated from 3.7% to 3.8%. Experts partly attribute the decline in employment to ongoing protests by healthcare workers as well as winter storms affecting sectors such as construction, leisure, and entertainment.
Given that January consumer inflation stood at 2.4% and producer prices reached 2.9%, the incoming data may deepen divisions within the Federal Reserve. Some policymakers — the so-called “hawks” — consider combating inflation the primary objective, while the “doves” prefer prioritizing labor market support. For now, the hawkish camp still holds the majority, increasing the likelihood that the Fed will maintain its current monetary policy stance for a prolonged period.
Cleveland Federal Reserve Bank President Beth Hammack said interest rates could rise further if inflation fails to slow to the 2.0% target by the end of the year. Boston Fed President Susan Collins noted that she currently sees no need to adjust credit conditions given persistent inflation risks. Meanwhile, San Francisco Fed President Mary Daly stated that the weaker-than-expected employment report highlights the instability of the labor market but does not necessarily justify an immediate shift toward monetary easing.
Eurozone
The euro is strengthening against the yen and the U.S. dollar, while showing mixed performance against the pound.
Investors are evaluating macroeconomic data from Germany. Industrial production declined by 0.5% in monthly terms instead of the expected increase of 1.0%, while annual output fell by 1.09% following a previous rise of 0.44%. Manufacturing orders dropped by –11.1%, far worse than the forecast of –4.2%.
Nevertheless, analysts remain cautiously optimistic, suggesting that economic performance this year could improve compared with last year if the U.S.–Iran conflict does not turn into a prolonged confrontation. The Sentix Investor Confidence Index for March confirmed weakening sentiment, falling from 4.2 to –3.1 points. The indicator for Germany, the bloc’s largest economy, declined from –6.9 to –12.1 points amid the energy shock and geopolitical risks.
United Kingdom
The British pound is strengthening against the yen and the U.S. dollar but shows mixed performance against the euro.
Prime Minister Keir Starmer stated today that the government is holding discussions with international partners and the Bank of England to assess ways to limit the economic damage from the escalation of the Middle East crisis. He warned that prolonged hostilities could significantly affect the national economy.
The United Kingdom remains particularly vulnerable to rising natural gas prices, which have already doubled since the escalation of tensions in the Persian Gulf region. Starmer emphasized that the national electricity price cap system would limit sharp increases in household energy costs until July. Analysts warn that prolonged energy price pressures could slow the economic recovery, potentially forcing Chancellor Rachel Reeves to increase government borrowing.
Japan
The yen is weakening against the euro and the pound while showing mixed performance against the U.S. dollar.
In January, Japan’s current account surplus (seasonally adjusted) increased from 0.729 trillion yen to 0.942 trillion yen, missing expectations of 0.960 trillion yen. Real wages, adjusted for inflation and considered a key indicator of consumer purchasing power, rose from –0.1% to 1.4% year-on-year.
Average nominal income climbed by 3.0%, the strongest growth since July, reaching 301,314 yen (approximately $1,911). Special payments, largely consisting of one-off bonuses, increased from a revised 2.7% to 3.8%. The improving macroeconomic statistics increase the likelihood that the Bank of Japan could continue tightening monetary policy.
Australia
The Australian dollar is strengthening against the euro, yen, pound, and the U.S. dollar.
Expectations of further monetary tightening by the Reserve Bank of Australia (RBA) are rising after January consumer inflation remained at 3.8%, above expectations of 3.7% and still exceeding the central bank’s target range of 2.0–3.0%. The trimmed mean inflation rate stood at 3.4% compared with 3.3% expected, while the weighted median rose from 3.2% to 3.6%.
Escalating geopolitical tensions in the Middle East also increase the risk of additional inflation pressures. Tomorrow at 01:30 (GMT+2), the Westpac Consumer Confidence Index will be released. Preliminary forecasts suggest a decline from 90.5 to 89.5 points. While this could weigh on the national currency, it is unlikely to force the RBA to abandon its tightening stance in the medium term.
Oil
After an initial morning rise, oil prices turned lower. Earlier gains were driven by concerns about supply disruptions and reduced hydrocarbon production in Persian Gulf countries. Saudi Arabia, Kuwait, and Bahrain have already warned about potential output constraints.
Investors are also monitoring reports that the Iranian export port on Kharg Island, which handles about 90% of the country’s oil exports, could come under the control of the United States and Israel. Such a development could intensify attacks on regional infrastructure.
At the same time, the rally in oil prices is being limited by reports that the United States and several other countries are coordinating a joint release of strategic fuel reserves to stabilize markets. Current plans suggest releasing 300–400 million barrels, equivalent to about 25–30% of total reserves estimated at 1.2 billion barrels.
