Markets on Hold as Inflation Cools: Dollar, Euro, Pound, Yen and Gold in Focus

Investors and forex traders remain focused on January inflation data, which showed the consumer price index falling from 2.7% to 2.4% year over year—the lowest level since May of last year—and from 0.3% to 0.2% month over month, versus consensus forecasts of 2.5% and 0.3%, respectively. The core CPI, which excludes food and energy, eased from 2.6% to 2.5% year over year and rose from 0.2% to 0.3% month over month. The report strengthened analysts’ confidence in the continuation of the Federal Reserve’s dovish cycle and the likelihood of more than one rate cut, although decisive steps are expected only in the second half of the year. In May, the Fed will be led by a new chair replacing Jerome Powell, who often resisted cutting rates quickly and faced criticism from the Republican White House administration. Meanwhile, the European Central Bank maintains a cautious wait-and-see stance, which, while not directly supporting the euro, creates a fundamentally different backdrop compared with the U.S. ECB President Christine Lagarde confirmed that eurozone inflation prospects are in a “good place” and warned against overreacting to short-term or volatile data. About 85% of economists surveyed by Reuters in January believe the ECB will keep interest rates unchanged throughout 2026, reflecting consensus on the end of the tightening cycle and a prolonged pause. Eurozone GDP data for Q4, published on February 13, showed 0.3% quarter-on-quarter growth, fully in line with forecasts and confirming a “soft landing” scenario for the region’s economy.

GBP/USD

The pound is trading near flat during the morning session on February 16, consolidating around 1.3640. Investors are reluctant to open new positions at the start of the week, preferring to wait for key labor market data that could influence Bank of England policy decisions. Current forecasts suggest a notable rise in unemployment claims in January from 17.9K to 22.8K, while average earnings including bonuses may ease from 4.7% to 4.6%, signaling potential easing of inflation risks. The unemployment rate is expected to hold near 5.1%. On February 18 at 09:00 (GMT+2), producer inflation data will be in focus, with core PPI likely slowing from 3.2% to 3.1% and the broader index from 3.4% to 3.0%. If confirmed, this would support arguments for a rate cut as early as the March 19 meeting. Additional support for the pound comes from relative stabilization in UK domestic politics: Prime Minister Keir Starmer secured cabinet and Labour Party backing following the release of compromising information related to financier Jeffrey Epstein, which led to the resignation of chief of staff Morgan McSweeney. Although the episode exposed vulnerabilities in the government, rapid consolidation around the prime minister reduced short-term political risks and allowed markets to refocus on macroeconomic factors. U.S. investors, meanwhile, continue to assess Friday’s inflation data showing CPI down from 2.7% to 2.4% year over year and from 0.3% to 0.2% month over month, reinforcing expectations for monetary easing in the second half of the year.

AUD/USD

The Australian dollar is correcting after last week’s bearish trading, when the pair retreated from record highs last seen in early February 2023. Prices are currently testing the 0.7090 level on a potential upside breakout. The key driver was the Reserve Bank of Australia’s February 3 decision to raise interest rates by 25 basis points to 3.85%, the first hike since 2023. The RBA also revised its economic growth and inflation forecasts, noting that price pressures in Q4 were significantly stronger than expected. Deputy Governor Andrew Hauser said the central bank is prepared to take any steps necessary to contain inflation, adding that policies aimed at keeping the economy near balance may have made Australia more sensitive to shifts in demand. Meanwhile, markets continue to expect a dovish stance from the U.S. Federal Reserve, with at least two rate cuts priced in following softer U.S. inflation data.

USD/JPY

The U.S. dollar shows moderate gains against the yen, trading near 153.25 during the Asian session after a strong bearish trend last week. The move comes amid fundamental changes in Japan’s political landscape and a reassessment of global fiscal and monetary expectations. In snap parliamentary elections on February 8, the ruling coalition led by Prime Minister Sanae Takaichi secured a constitutional majority in the lower house—316 of 465 seats—allowing it to override vetoes and propose constitutional amendments. The strong mandate opens the door to large-scale fiscal measures, including a temporary two-year suspension of the 8.0% tax on food and alcohol, expanded social programs, and increased defense spending. Investors are divided due to Japan’s high public debt—about 2.3 times GDP—and potential inflation risks. Japanese equities rallied, with the Nikkei 225 reaching record highs, while the currency market saw increased volatility and yen strength on expectations of tighter policy from the Bank of Japan. Recent data showed corporate goods prices rising 0.2% month over month and easing from 2.4% to 2.3% year over year, still above the BoJ’s 2.0% target. GDP data for Q4 showed the economy expanding 0.2% year over year after a 2.6% contraction, below expectations of 1.6%, while quarterly growth was just 0.1% versus a 0.4% forecast.

XAU/USD

During the Asian session, gold prices edged lower, slipping back below the psychological $5,050 per troy ounce amid shifts in inflation and U.S. monetary policy expectations. January CPI data showed inflation slowing to 2.4% year over year and 0.2% month over month, with core inflation easing to 2.5% year over year. Food prices rose 0.2% in January, while energy prices fell 1.5%, partially offsetting overall cost pressures. Key household expenses in the U.S.—food, gasoline, and housing—remain about 25% higher than pre-pandemic levels. Meanwhile, household delinquency rates rose to 4.8% in Q4, the highest since 2017, driven mainly by younger and lower-income borrowers. A CBS News poll showed 34% of respondents rated the U.S. economy as “very” or “fairly good,” while 60% viewed it as “very” or “fairly bad.” Following the inflation report, 10-year U.S. Treasury yields eased to around 4.08–4.10%, reflecting increased expectations of policy easing. According to the CFTC, net speculative positions in gold slipped slightly to 160.0K from 165.6K a week earlier, though investors continue to hold large long positions, confirming a corrective phase in the metal.