Analysts are confident that the regulator will keep monetary policy parameters unchanged, as macroeconomic data do not show signs of a solid recovery. In addition, inflation in the region has fallen below the 2.0% target, creating room for an extended pause in the dovish cycle and weakening potential support for the single currency. This week, investors’ attention is mainly focused on US data, including the nonfarm payrolls report and consumer price index figures, which could either confirm or challenge current hawkish expectations.
For now, the market’s focus has shifted to EU retail sales dynamics. Current forecasts suggest that annual growth will slow from 2.3% to 1.6%, while monthly sales are expected to decline by 0.2% after rising by the same amount in November. Meanwhile, services sector activity data have already come in slightly below neutral forecasts. Germany’s S&P Global and Hamburg Commercial Bank (HCOB) services PMI fell from 53.3 to 52.4 points in January, while the eurozone index slipped from 51.9 to 51.6. At the same time, the main driver of US dollar strength has been a reassessment of expectations regarding the timing of monetary easing by the Federal Reserve.
US inflation and labor market data have proven more resilient than expected, while the Institute for Supply Management (ISM) manufacturing index in January unexpectedly posted its fastest growth since August 2022, returning to expansion territory. This forced markets to significantly revise previous expectations regarding the future direction of monetary policy. According to the CME FedWatch Tool, the probability of a rate cut at the March meeting is estimated at just 8.0%, while the likelihood of rates remaining in the 3.50–3.75% range in April is approaching 80.0%.
GBP/USD
The British pound is showing moderate losses against the US dollar, extending a fairly strong short-term downward trend and testing the 1.3620 level for a downside breakout ahead of the Bank of England meeting. Expectations are growing that pressure toward further monetary easing could intensify, as the fundamental backdrop remains mixed. On the one hand, economic data released in January exceeded expectations, including a recovery in retail sales volumes in December, improving business activity, and a solid GDP reading for November.
Inflation has been a key factor, accelerating to 3.4% at the end of 2025—the highest among G7 countries—temporarily reducing market expectations for a near-term shift in monetary policy. Nevertheless, the regulator expects inflation to return to the 2.0% target by mid-year. On the other hand, signs of cooling in the labor market persist, which analysts believe requires additional caution from policymakers. This contradiction is likely to shape the tone of the central bank’s statements on Thursday. Recent UK macroeconomic data added further pressure on the pound: the S&P Global services PMI declined from 54.3 to 54.0 points, below neutral forecasts, while the composite index slipped from 53.9 to 53.7 points.
NZD/USD
The New Zealand dollar is posting moderate losses against the US dollar, extending a bearish impulse and once again falling below the psychological 0.6000 level. Pressure on the pair followed mixed macroeconomic data from New Zealand. The unemployment rate rose to 5.4% in the fourth quarter, reaching its highest level since 2015, although this negative signal was partially offset by stronger-than-expected employment growth of 0.5%.
Overall, the data were broadly in line with Reserve Bank of New Zealand (RBNZ) forecasts and are unlikely to significantly alter short-term monetary expectations, as inflation reached 3.1% in December—well above the 2.0% target. This continues to support market expectations of possible future policy tightening. Against the backdrop of improving consumer confidence, which hit its highest level since August 2021 in January, investors and FX traders are pricing in the possibility of a rate hike from the current 2.25% level later this year, potentially as early as September. The first meeting under new governor Anna Breman will be closely watched for signals on the future policy path.
An important external support factor for the New Zealand dollar remains the state of China’s economy, the country’s key trading partner. Recent data showing an expansion in manufacturing activity in January have improved the outlook for commodity-linked and export-oriented currencies, including the kiwi. However, differences in monetary trajectories compared with neighboring Australia—where policymakers have already begun a rate-hiking cycle—limit the potential for faster long-term appreciation.
Additional attention was drawn to a sharp rise in the dairy price index in January, up 6.7% versus a previous increase of 1.5%, while the ANZ commodity price index gained 2.0% after a −2.1% correction in December. Support for the US dollar on Wednesday came from mixed but generally positive US services sector data: the S&P Global services PMI rose from 52.8 to 53.0 points, beating neutral forecasts, while the ISM services index held steady despite expectations of a decline to 53.5. Investors also focused on ADP data showing that just 30,000 new nonfarm jobs were created in January, well below the 150,000 monthly average seen at the end of 2025. Notably, the US Department of Labor will not publish its official monthly employment report on February 6 due to the effects of a brief government shutdown.
USD/JPY
The US dollar is showing modest gains against the Japanese yen, testing the 156.80 level for an upside breakout during the Asian session and updating local highs from January 23. The yen remains under pressure amid rising political uncertainty. Snap parliamentary elections are scheduled for February 8, called by Prime Minister Sanae Takaichi, who is seeking to consolidate support from ruling and allied parties ahead of major fiscal reforms.
The proposed package includes a temporary suspension of the 8.0% consumption tax on food and non-alcoholic beverages for two years, expanded social spending, and additional fiscal stimulus for households and businesses. These measures are estimated to result in an annual revenue shortfall of around 5.0 trillion yen (approximately $31.7 billion), against the backdrop of already record-high public debt exceeding 230.0% of GDP. Fiscal easing combined with the Bank of Japan’s accommodative monetary stance has pushed 10-year government bond yields up to 0.9–1.0%, increasing pressure on the yen.
The situation has been further complicated by inconsistent rhetoric from the prime minister regarding the exchange rate. Initial comments were interpreted as tolerance for further yen depreciation to support exporters, who account for more than 18.0% of GDP. Subsequent attempts to emphasize currency stability were seen as poorly timed. Analysts believe this inconsistency has undermined the Ministry of Finance’s efforts to contain devaluation expectations, triggering renewed yen selling, higher volatility, and additional pressure on the bond market due to rising fiscal risk premiums.
Monetary authorities remain cautious: despite exiting negative interest rates and raising the policy rate to 0.75% in December, the Bank of Japan continues to avoid premature tightening. Recent Tokyo inflation data showed annual consumer price growth slowing to 1.5%, down from 2.3–2.5% in late 2025 and below the 2.0% target. This has supported a pause in the hawkish cycle, depriving the yen of a key fundamental support factor. Meanwhile, business activity data point to modest expansion, with the Jibun Bank services PMI rising from 53.4 to 53.7 points in January and manufacturing holding at 51.5.
The US dollar remains more attractive for investment, reinforcing upward pressure on USD/JPY, especially after Kevin Warsh was named the leading candidate to become the next Federal Reserve chair in May. Markets interpreted this as a signal of policy continuity and potentially tougher responses to inflation risks, easing concerns about political interference in monetary policy and supporting expectations for a longer period of restrictive financial conditions.
XAU/USD
Gold prices are showing a confident decline during the morning session on February 5, consolidating around the 4900.0 level. Wednesday’s corrective move failed to extend, encountering resistance amid reports of a likely May appointment of Kevin Warsh as the next Federal Reserve chair, as previously indicated by US President Donald Trump. As a result, expectations for an aggressive dovish cycle fell sharply, boosting the US dollar and weighing on non-yielding assets such as gold.
Monetary policy uncertainty persists, as risks related to trade conflicts remain elevated. After statements by the US president about possible additional tariffs against European countries in the context of discussions over Greenland’s status, previously reached agreements have come into question. On Wednesday, the European Parliament’s Committee on International Trade failed to reach a unified position on an agreement with the US, increasing the risk of renewed tensions.
Despite these short-term developments, structural drivers of gold demand remain intact. Geopolitical uncertainty in the Middle East, ongoing trade disputes, and concerns about global economic growth continue to support interest in safe-haven assets. Central bank demand also plays a significant role: in 2025, they purchased a record 863.0 tonnes of gold as part of reserve diversification and de-dollarization efforts. According to JPMorgan Chase & Co., combined quarterly demand from investors and financial institutions in 2026 is expected to average around 585.0 tonnes, providing ongoing support for prices.
US data also influenced the market. ADP reported that just 30,000 nonfarm jobs were created in January, far below the 150,000 monthly average recorded at the end of 2025. At the same time, the ISM services PMI rose to 53.5 points versus a forecast of 52.8, signaling continued expansion but creating a mixed backdrop for assessing the future path of borrowing costs. Meanwhile, the core producer price index increased by 0.3% month-on-month and 2.2% year-on-year in December, pointing to persistent inflationary pressure and the pass-through of higher costs to end consumers.
