According to the latest figures, the eurozone manufacturing PMI stood at 49.5 points in January, remaining below the key 50.0 threshold and marking a third consecutive month of contraction, despite a slight improvement from December’s 48.8 and beating preliminary forecasts. The decline is primarily driven by falling new orders. Meanwhile, Germany’s corresponding index rose from 47.0 to 49.1.
ECB President Christine Lagarde effectively confirmed the possibility of a rate cut as early as April, provided March forecasts confirm further easing in price pressures. Key data will be released on Friday at 12:00 (GMT+2), including employment and fourth-quarter GDP figures, which may show a slowdown from 0.2% to 0.1% in employment growth and from 1.4% to 1.3% in GDP growth, respectively. December trade balance data are expected to improve slightly from €9.9B to €10.2B, potentially offering limited support to the euro.
Meanwhile, the January US labor market report pushed 10-year Treasury yields up by five basis points and triggered a short-term rebound in the dollar. Nonfarm payrolls rose by 130K, nearly double the 70K consensus forecast, while unemployment declined from 4.4% to 4.3%, and hourly earnings accelerated to 0.4% month-on-month versus 0.3% expected. However, annual benchmark revisions from the Bureau of Labor Statistics significantly altered the interpretation: total employment gains for 2025 were revised down by 898K jobs, and the average monthly increase was reduced from 49K to 15K. According to the CME FedWatch Tool, traders now assign a 65% probability to the first rate cut occurring in July, compared to earlier expectations of a spring easing cycle. This repricing appears technical rather than a reflection of renewed confidence in the dollar.
GBP/USD
The pound is trading slightly lower against the US dollar, extending the bearish impulse of the previous two sessions and testing 1.3620 for a downside breakout. Market attention has shifted to UK fourth-quarter GDP data, due at 09:00 (GMT+2). Analysts expect annual growth to slow from 1.3% to 1.2%, while quarterly growth may improve from 0.1% to 0.2%. Monthly figures could decline from 0.3% to 0.1%, reflecting weaker domestic demand and a cooling labor market.
Industrial production data are also expected to show a slowdown, with annual growth easing from 2.3% to 1.5% and monthly output stagnating at 0.0%. Any negative surprise could weigh heavily on growth expectations.
The Bank of England’s February 4–5 meeting marked a significant shift in tone. Although the benchmark rate was kept at 3.75%, the vote was notably dovish, with four members supporting an immediate 25-basis-point cut. Governor Andrew Bailey acknowledged that inflation may reach the 2.0% target earlier than expected, opening the door for potential rate cuts later this year.
However, strong US labor data supported the dollar, reinforcing expectations that the Federal Reserve will likely deliver only one 25-basis-point cut in 2026. The probability of rates remaining at 3.50–3.75% at the March 18 meeting now stands at 93.6%, according to CME FedWatch.
AUD/USD
The Australian dollar remains range-bound near 0.7120 during the February 12 Asian session, consolidating close to its February 2023 highs. The Reserve Bank of Australia’s decision to raise rates by 25 basis points to 3.85% continues to underpin the currency.
The February 6 monetary policy statement revealed a significant upward revision of inflation forecasts. Core inflation reached 3.4% year-on-year in Q4, exceeding earlier projections, while trimmed mean inflation stood at 3.6%, driven by services, retail goods, and housing construction costs. The RBA acknowledged that supply constraints are more severe than previously estimated and that aggregate demand remains elevated.
Nonetheless, gains are capped by strong US employment data, which reduced expectations of aggressive Fed easing and supported the dollar.
USD/JPY
The US dollar is consolidating near 153.00, while the yen remains under short-term pressure following the recent parliamentary election results in Japan. The ruling coalition led by Prime Minister Sanae Takaichi secured a constitutional majority, enabling it to advance legislation without opposition support.
Initial market reaction suggested that the strong mandate would pave the way for expansionary fiscal measures, potentially weakening the yen. However, sentiment shifted as investors reassessed the outcome as providing greater fiscal discipline flexibility. Still, the government’s fiscal stance may diverge from the Bank of Japan’s gradual tightening path.
Japan’s producer price index slowed from 2.4% to 2.3% year-on-year in January, while rising slightly month-on-month from 0.1% to 0.2%, broadly in line with expectations.
XAU/USD
Gold prices are slightly lower on Thursday morning, retreating from January 30 highs and testing $5,065 per ounce for a downside breakout. The reaction to US labor data has been mixed: the US dollar index gained 0.2%, 10-year Treasury yields rose to 4.19%, and 2-year yields climbed to 3.55%, their highest levels in a week.
While annual wage growth remained steady at 3.7%, monthly earnings rose 0.4%, above expectations. This could signal persistent inflationary risks, though the Federal Reserve maintains confidence in its inflation control strategy.
The latest data have reshaped market expectations, with investors now aligning more closely with the Fed’s projection of only one 25-basis-point rate cut in 2026.
