Markets in Focus: Forex and Gold React to Central Bank Signals and Global Risks

The key event of the week will undoubtedly be the European Central Bank (ECB) meeting scheduled for February 4–5. Most analysts and investors broadly expect monetary parameters to remain unchanged for the fifth consecutive time following the aggressive dovish cycle of 2025. The main refinancing rate, deposit facility rate, and marginal lending rate are likely to be held at approximately 2.15%, 2.00%, and 2.40%, respectively.

The decision will once again be based on inflation dynamics, which remain the primary benchmark for assessing economic growth risks. As of November, the annual inflation rate stood at 2.1%, close to the 2.0% target, reflecting moderate but stable price pressure in the region. The main drivers of inflation acceleration continue to be rising energy and food prices, which have shown divergent trends across eurozone countries. Energy prices increased by an average of 5.2% year-on-year in November, while food prices rose by 3.1%. At the same time, service costs and industrial goods prices showed minimal fluctuations.

However, concerns are growing within the ECB Governing Council regarding the strength of the euro. Board members, including Martin Kocher and François Villeroy de Galhau, have noted that further appreciation of the euro could prompt the regulator to consider resuming monetary easing in order to neutralize disinflationary pressure and support export competitiveness. Meanwhile, U.S. macroeconomic data exceeded market expectations, supporting the dollar. The S&P Global manufacturing PMI rose from 51.9 to 52.4 points in January, beating neutral forecasts. An even stronger signal came from the Institute for Supply Management (ISM), where the manufacturing index surged from 47.9 to 52.6 points, far above the consensus forecast of 48.5.

Additional support for the dollar came from statements by U.S. House Speaker Mike Johnson, who expressed confidence that the partial federal government shutdown would be resolved today. A partial technical shutdown began in the U.S. on Saturday, but the Senate approved a funding bill for key government agencies on the same day, reducing political uncertainty and strengthening confidence in dollar-denominated assets.

GBP/USD

The British pound is gaining during the morning session on February 3, recovering after a bearish start to the trading week and testing the 1.3690 level for an upside breakout, as market participants prepare for the Bank of England meeting scheduled for Thursday, February 5. The regulator is widely expected to keep the interest rate unchanged at 3.75%, with investor focus shifting to the tone of the Monetary Policy Committee’s commentary.

A more hawkish stance would support the pound, but policymakers face a complex balancing act. Persistent inflation and positive growth data argue for maintaining the current stance, while rising unemployment and signs of economic slowdown point toward future easing. Officials have previously emphasized that they will not wait for inflation to fall precisely to the 2.0% target, instead focusing on broader economic conditions.

The pound also received some support from strong January housing price data released by Nationwide Building Society. The index showed house prices rising by 0.3% month-on-month, up from –0.4%, and by 1.0% year-on-year compared to 0.6% previously, exceeding preliminary estimates.

In late 2025, activity in the sector slowed somewhat amid ongoing uncertainty surrounding property taxation and the national budget. This was reflected in Bank of England data on approved mortgage loans, which fell to 64.5 thousand in November but remained near pre-pandemic levels, indicating sustained demand and adaptation to current market conditions.

The U.S. dollar is receiving short-term support from the White House’s nomination of Kevin Warsh as the next Federal Reserve chair. Markets view him as more hawkish than other candidates, although the broader narrative of dollar weakening promoted by the Republican administration remains in place. Additional risks stem from escalating trade tensions, particularly new statements from the U.S. president regarding potential 50% tariffs on Canadian aircraft.

AUD/USD

The Australian dollar is showing strong gains against the U.S. dollar during the Asian session, once again testing the 0.7000 level for an upside breakout, as markets focus on the outcome of the Reserve Bank of Australia (RBA) meeting. Policymakers unanimously voted to raise the interest rate by 25 basis points from 3.60% to 3.85%, marking a turning point after the easing cycle observed in 2025.

The main reason for tightening monetary conditions was persistent inflationary pressure. In the fourth quarter, the weighted CPI rose to 3.4% year-on-year from 3.0%, driven by credit growth and domestic demand, significantly exceeding the 2.0–3.0% target range. This contradicted earlier expectations that inflation would slow by December, with the RBA previously describing autumn price pressures as temporary.

RBA Governor Michele Bullock described the figures as “unacceptable,” stating that the central bank has a “clear enough understanding” of the situation to take decisive action. Rising housing costs, durable goods prices, and services—driven by higher labor costs—were cited as key contributors. Labor market conditions remain tight, with unemployment falling to 4.1% and employment rising by 65.2 thousand jobs in December, while wage growth and unit labor costs remain elevated.

January inflation expectations were revised upward from 3.5% to 3.6% year-on-year, although a sharp slowdown is expected on a monthly basis. U.S. investors are now focused on the January U.S. labor market report, which will play a key role in shaping expectations for Federal Reserve policy. The Chicago Fed forecasts a slight increase in unemployment to 4.35% from 4.38%, with layoffs remaining historically low.

USD/JPY

The U.S. dollar is edging lower against the Japanese yen, retreating from local highs set on January 23 and testing the 155.40 level for a downside breakout, as investors await fresh catalysts. The yen has been supported by a shift in Bank of Japan rhetoric. Minutes from the latest meeting revealed growing hawkish sentiment among some board members, with calls for a gradual rate hike due to persistently low real rates and inflation risks caused by a weak yen.

Governor Kazuo Ueda confirmed readiness to adjust policy if economic conditions evolve in line with forecasts. Markets have largely priced in the possibility of an April rate adjustment from the current 0.75%. While inflation remains above the BoJ’s target, recent data from Tokyo and nationwide figures for December 2025 show a slowdown to 2.1% year-on-year. Weak retail sales data also point to subdued consumer demand.

Attention is also turning to snap parliamentary elections scheduled for February 8. Prime Minister Sanae Takaichi is promoting significant fiscal stimulus to win voter support—measures markets see as populist and potentially harmful given Japan’s public debt exceeds 230% of GDP.

Meanwhile, the U.S. Federal Reserve, having completed its dovish cycle in 2025, remains on hold with rates at 3.50–3.75%. Divisions persist within the FOMC, with two members voting for immediate cuts while the majority favors patience.

XAU/USD

Gold prices have returned to strong growth, posting a corrective rebound after a bearish start to the week that briefly pushed the metal to local lows last seen on January 5 amid rising U.S.–Iran tensions. Markets also received signals of potential stabilization in monetary policy following President Donald Trump’s nomination of Kevin Warsh as Federal Reserve chair.

Although Warsh is often viewed as a supporter of low interest rates, he is also expected to pursue balance sheet reduction—a policy that typically supports the dollar and pressures dollar-denominated assets such as gold.

Despite short-term corrections, the fundamental drivers for gold remain intact. Elevated global uncertainty continues to support demand for safe-haven assets. Central banks worldwide remain active buyers as they diversify reserves. Gold purchases reached 863.0 tonnes in 2025, while inflows into gold ETFs totaled 801.0 tonnes, and demand for bars and coins reached 1,374 tonnes, underscoring deep confidence in gold as a store of value.