Eurozone economic sentiment fell from 40.8 to 39.4 points in February, while analysts had expected 45.2. The comparable gauge for Germany slipped from 59.6 to 58.3 versus a forecast of 65.0. Rising defense spending across Europe continues to signal stronger budget support, but its impact on business activity and private investment remains limited.
According to the latest official figures for 2025, total spending by the bloc’s 27 member states amounted to roughly €381.0 billion, or 2.1% of combined GDP. Germany has already approved a defense budget of €108.2 billion, underscoring the priority of strengthening security and modernizing the armed forces. Still, venture funding for defense startups—including AI, cybersecurity, and unmanned systems—is estimated at under $1.0 billion in 2026, an order of magnitude below government outlays and reflective of private capital’s caution amid long payback cycles, regulatory barriers, and persistent geopolitical uncertainty.
Meanwhile, Germany’s January inflation data matched preliminary estimates: CPI rose from 0.0% to 0.1% m/m and from 1.8% to 2.1% y/y, while the harmonized measure eased from 0.2% to −0.1% m/m and rose from 2.0% to 2.1% y/y, staying above the Bundesbank’s 2.0% reference level. A steady inflation backdrop in the EU remains a key pillar of support for the single currency, reinforcing expectations that the European Central Bank (ECB) will avoid additional monetary easing amid a resilient labor market. Employment in Q4 increased by 0.2% to 176.13 million, beating expectations and marking the nineteenth consecutive quarter of growth—evidence of a slow but steady expansion of the region’s workforce and a firmer base for economic activity.
GBP/USD
During the Asian session, GBP/USD is holding near 1.3557, extending the bearish impulse formed the day before. The downside move was driven by a weak labor market report: the unemployment rate rose from 5.1% to 5.2%, the highest level in more than a decade (excluding the COVID-19 period). The number of unemployed increased by 94.0K q/q to 1.883 million, while employment growth slowed from 82.0K to 52.0K. Average wage growth came in at 4.2% versus an expected 4.6%, while the same measure excluding bonuses eased from 3.6% to 3.4%. In real terms, growth was only 0.5–0.8%, suggesting purchasing power is broadly preserved but without creating additional inflation pressure. Overall, the data point to cooling in the sector, strengthening the case for the Bank of England to maintain a dovish stance. Markets now price a 70.0% probability of a 25 bp rate cut at the March meeting, whereas expectations had been far more muted before the report.
UK CPI data due today at 09:00 (GMT+2) will be critical for policy expectations. Consensus forecasts see annual inflation slowing to 3.0% from 3.4% in December—the lowest since September 2024 and closer to the BoE’s 2.0% target—while a sustained disinflation trend would provide the MPC with a stronger rationale to ease policy in support of growth. Core CPI is expected to edge down from 3.2% to 3.1%, still near the lows seen in 2021. Meanwhile, Friday’s U.S. inflation figures have weighed on the dollar: in January, CPI slowed to 0.2% m/m versus 0.3% expected and from 2.7% to 2.4% y/y versus a 2.5% forecast, while core CPI moved from 0.2% to 0.3% m/m and from 2.6% to 2.5% y/y, in line with estimates. Combined with signs of cooling in the labor market, the data reinforced expectations for policy easing in the second half of the year. CME FedWatch implies markets are pricing two or even three 25 bp cuts, with the probability of the first cut in June near 52.0%, while the odds of the rate staying at 3.50–3.75% at the March 18 meeting stand at 90.2%.
AUD/USD
The Australian dollar is posting a modest decline against the U.S. dollar, with AUD/USD testing the 0.7070 area for a downside break as investors and FX traders assess domestic data. Australia’s wage price index rose from 3.3% to 3.4% y/y in Q4, while holding at 0.8% q/q, indirectly pointing to persistent inflation risks—something the Reserve Bank of Australia (RBA) has repeatedly highlighted. Official projections indicate CPI will peak around mid-year, with core inflation near 3.7% and headline inflation around 4.2%, followed by a gradual slowdown.
As a result, a return to the 2.0–3.0% target band is now expected only by mid-2028—much later than previous estimates—reflecting a reassessment of how sticky price pressures may be and strengthening the argument for tighter monetary conditions to prevent a renewed inflation spiral. Markets currently price roughly 60 bps of additional rate hikes by year-end, whereas not long ago participants leaned toward a slow shift toward easing. The next RBA meeting is scheduled for March 3, and while most analysts do not expect an immediate rate change given the need to evaluate incoming data, the forward guidance—especially the labor market assessment—will be closely watched for signals about a potential May decision. The next key Australian data release will be the January labor market report on Thursday, February 19: unemployment is expected to rise from 4.1% to 4.2% (seasonally adjusted), while employment growth is likely to slow from 65.2K to 20.0K.
USD/JPY
The U.S. dollar is showing restrained gains against the yen, developing an uncertain ultra-short-term uptrend and testing 153.60 for a breakout to the upside as investors evaluate GDP data released earlier this week. On a year-over-year basis, the economy expanded by just 0.2% versus a 1.6% forecast, confirming that the stimulus measures adopted in late 2025 have not yet delivered the expected acceleration in activity. This leaves Prime Minister Sanae Takaichi’s government facing a difficult trade-off between further support measures and commitments to fiscal consolidation.
On February 8, Japan’s Liberal Democratic Party regained a majority in the lower house, winning 316 of 465 seats—the strongest result for democratic forces since 2017, when Shinzo Abe led the cabinet. Investors largely expect Takaichi to move cautiously on campaign pledges that could negatively affect government debt dynamics. She has confirmed that any temporary cut to the tax on food—potentially creating a budget shortfall of JPY 5.0 trillion per year—will not be financed through additional borrowing, and the government intends to gradually reduce the debt-to-GDP ratio. Inflation expectations remain in focus, with Japan’s CPI data due on Friday serving as an important guide for the timing of the next rate hike; consensus suggests that progress toward the 2.0% target could push that timeline back to at least June. Today’s Japanese trade data provided modest support to the yen: exports surged 16.8% y/y from 5.1% in December (vs. 12.0% expected), while imports fell 2.5% after a 5.2% increase previously. The trade balance showed a deficit of about JPY 1.0 billion, compared with a surplus of JPY 105.7 billion a month earlier.
XAU/USD
Gold is posting corrective gains in the morning session on February 18, testing 4940.0 for an upside break. At 15:30 (GMT+2), U.S. investors will focus on December durable goods orders—one of the key indicators of industrial activity and medium-term inflation dynamics. Forecasts point to headline orders falling from 5.3% to −1.7%, core orders easing from 0.4% to 0.3%, and the measure tracking non-defense capital goods orders excluding aircraft rising from 0.4% to 0.5%. If the weaker forecasts materialize, it would reinforce the narrative of softening domestic demand, as households continue to delay big-ticket purchases amid uncertainty.
Credit costs also remain elevated, as policymakers have not yet embarked on a sustained dovish easing cycle. Additional U.S. housing starts data for November and December are due later in the day and could confirm a slowdown in construction activity, before the session culminates with the release of the January FOMC minutes, when the policy rate was kept at 3.50–3.75%. Since then, markets have significantly revised expectations for easing this year and now do not rule out as many as three cuts. Beyond macro factors, gold’s price action remains heavily influenced by geopolitics in the Middle East: the second round of indirect talks between Iran and the U.S. concluded on the previous day, and Iranian Foreign Minister Abbas Araghchi said the dialogue was more “constructive” than before, as both delegations arrived in Geneva with full technical and economic preparation—signaling a serious intent to reach an outcome. Media reports suggest Iran is willing to consider compromise options for a renewed nuclear deal, including discussions around uranium enrichment levels, provided the U.S. eases sanctions. A transfer of part of Iran’s enriched uranium to a third party, such as Russia, is also being discussed.
