Forex News

TD Securities Senior European & UK Rates Strategist Pooja Kumra reports that GBP spreads are continuing to richen across the curve, particularly in the belly, with 5-year spreads increasing by nearly 10bps since the start of the year. Kumra notes that favorable fiscal and monetary policies are key drivers, and market expectations remain for one to two more rate cuts from the BoE.

GBP spreads show positive momentum

"As highlighted previously, the key drivers remain a rare sterling combination of favourable fiscal and monetary policy. Net issuance into the end of FY25/26 is supportive, and FY26/27 should see a further decrease in supply."

"Incoming data has taken a back seat but still keeps market expectations alive for one to two more rate cuts from the BoE, in contrast to other central banks where the bias is shifting more toward holding or even hiking."

"This dynamic supports cheapening of GBP spreads relative to USD spreads. This in particular holds as we enter some small range-trading levels in global rates."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Deutsche Bank's Macro Strategy report highlights a positive outlook for the Dollar following strong economic data. The report notes that the ISM manufacturing index unexpectedly surged, contributing to rising optimism for 2026. The Dollar Index increased by 0.66%, marking its best two-day performance since last spring.

Dollar strengthens on positive economic signals

"One of the clearest reactions to the ISM was in US Treasury markets, with yields moving higher as investors priced out the chance of Fed rate cuts. For instance, futures had been pricing in an 87% chance of another rate cut by the June FOMC (which would be Warsh’s first as Chair if confirmed), but that was down to 70% by the close."

"Higher yields supported the dollar index (+0.66%), which has had its best two-day run since last spring."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

• EUR/GBP stabilizes around 0.8630, close to its lowest level in five months.
• Investors await monetary policy decisions from the European and UK central banks on Thursday.
• Preliminary inflation data in the Eurozone and the UK shape market expectations.

EUR/GBP trades with caution around 0.8630 on Tuesday at the time of writing, hovering near its five-month low. The pair lacks direction as investors limit positioning ahead of the monetary policy announcements from the European Central Bank (ECB) and the Bank of England (BoE), both scheduled for Thursday.

Markets widely expect both institutions to keep interest rates unchanged. On the European side, the ECB is seen maintaining its Deposit Facility Rate at 2%, as inflation in the Eurozone remains broadly close to the central bank’s 2% target. This view is reinforced by the expected slowdown in headline inflation, largely driven by energy base effects, which the ECB has already described as temporary.

Ahead of the ECB decision, attention turns to Wednesday’s release of the preliminary Eurozone Harmonized Index of Consumer Prices (HICP) data for January. Headline inflation is expected to rise by 1.7% YoY, down from 1.9% in December, while core inflation, which excludes volatile components, is forecasted to remain steady at 2.3%. These figures are likely to support the ECB’s wait-and-see approach, with no clear signal of an imminent policy shift.

In the United Kingdom (UK), the Bank of England is also expected to leave its policy rate unchanged at 3.75%. Policymakers believe the impact of the 25-basis-point rate cut delivered in December has yet to fully filter through to the real economy. At that meeting, the central bank reiterated that monetary policy remains on a gradual easing path.

However, the recent acceleration in UK inflation complicates the outlook for further near-term easing. In December, the UK Consumer Price Index (CPI) rose by 3.4% YoY, up from 3.2% in November, ending a period of moderation seen in previous months. This renewed price pressure could encourage BoE officials to remain cautious and avoid delivering back-to-back rate cuts.

Against this backdrop, EUR/GBP remains anchored near recent lows, as traders await clearer signals on the respective monetary policy paths in the Eurozone and the United Kingdom.

• Gold recovers as dip buyers return after last week’s violent sell-off from record highs.
• A firmer US Dollar and easing US-Iran tensions may limit near-term upside.
• Technically, price remains supported above the rising 20-day SMA, while Bollinger Bands continue to widen.

Gold (XAU/USD) consolidates its gains during the American session on Tuesday after surging more than 5% earlier in the day, as dip buyers step back into the market following last week’s violent correction from record highs near $5,600.

At the time of writing, XAU/USD is hovering near $4,925, recovering after slipping to near four-week lows around $4,402 on Monday.

The sharp sell-off was largely technical in nature, driven by position unwinding and margin-related liquidation rather than clear deterioration in fundamentals. The broader backdrop for Bullion remains supportive, while Tuesday’s rebound highlights still-elevated volatility across the precious-metals space, with Silver up nearly 10% on the day.

That said, Gold may extend its near-term consolidation in the absence of fresh catalysts, while tentative signs of easing tensions between the US and Iran could temper safe-haven demand. At the same time, renewed strength in the US Dollar (USD) may cap the upside in XAU/USD.

Market movers: US-Iran tensions ease, US-India trade deal announced, DXY rebounds

• Signs of easing US-Iran tensions emerge after Iranian President Masoud Pezeshkian said on Tuesday that he had instructed his foreign minister to “pursue fair and equitable negotiations” with the United States, with the two sides reportedly preparing to send senior envoys to Istanbul later this week for talks on Iran’s nuclear programme. The comments follow remarks from US President Donald Trump that Iran is “seriously talking”.
• US President Trump announced on Monday that the United States and India have agreed on a trade deal under which US tariffs on Indian goods will be reduced from around 50% to about 18%, while India will step up purchases of US products, with commitments that could reach up to $500 billion.
• US economic data flow has thinned after the Bureau of Labor Statistics said on Monday that the January Employment Situation report due on Friday will be delayed because of the partial government shutdown, with the JOLTS report also postponed.
• The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, is trading near one-week highs around 97.60, recovering after slipping to four-year lows last week.
• The rebound in the Greenback comes after markets welcomed US President Donald Trump’s nomination of former Federal Reserve Governor Kevin Warsh as the next Fed Chair. Warsh, who is widely viewed as an inflation hawk, has helped ease market concerns about the risk of aggressive rate cuts under political pressure.
• Upbeat US manufacturing data has reinforced the view that the Fed can afford to remain patient before resuming monetary policy easing. The Institute for Supply Management (ISM) Manufacturing Purchasing Managers Index (PMI) jumped to 52.6 in January from 47.9 in December, comfortably beating market expectations of 48.5, while the S&P Global Manufacturing PMI edged higher to 52.4 from 51.9.

Technical analysis: Uptrend intact despite elevated volatility

From a technical perspective, the broader uptrend on the daily chart remains intact. Price is holding above the 20-day Simple Moving Average (SMA), which also represents the middle Bollinger Band, near $4,800, keeping the short-term trend structure constructive despite the sharp and volatile correction from last week’s peak.

Bollinger Bands are widening and the Average True Range (ATR) has surged to around 212, signalling elevated volatility. Momentum indicators have also started to recover. The Relative Strength Index (RSI) stands near 55, rebounding from sub-50 territory and pointing to improving bullish momentum.

At the same time, the trend remains strong, with the Average Directional Index (ADX) elevated around 43, although the indicator is beginning to roll over from recent highs, suggesting the strength of the trend is easing rather than accelerating.

On the upside, the $5,000 psychological level marks the immediate resistance, followed by the upper Bollinger Band near $5,350. On the downside, a break below the middle Bollinger Band would expose initial support around $4,500, followed by Monday’s low near $4,402. A deeper cushion is located at the lower Bollinger Band around $4,250.

OCBC Bank analysts Sim Moh Siong and Christopher Wong report that Gold prices have shown tentative signs of stabilization after a sharp decline from above USD5,500/oz to a low of USD4,402/oz. The report notes that sensitivity to USD moves and Fed uncertainty remains high, suggesting that near-term trading may be choppy.

Gold prices stabilize after sharp drop

"The sharp decline in gold prices from above USD5,500/oz last week to low of USD4,402/oz yesterday appears to show tentative signs of stabilisation."

"While prices are now less elevated following the correction, sensitivity to the USD, yield repricing, and uncertainty around Fed policy remains high."

"4,400-4,600 remains a key area of support. Sustained break below would point to a deeper corrective phase with support at 4210/15 levels."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Remarks from Federal Reserve (Fed) Bank of Richmond President Thomas Barkin underline the economy’s resilience even as inflation remains above target. Barkin notes that, to date, rate cuts are framed as insurance for the labour market while the Fed works through the final phase of disinflation.

Key Quotes

Rate cuts so far have helped ensure the health of the job market while the Fed completes the last mile of returning inflation to target.

The economy remains remarkably resilient.

Given solid growth and low unemployment, it is hard to imagine businesses or consumers moving to the sidelines.

Rising productivity suggests firms can absorb higher input costs without needing to raise prices.

Firms report demand is fine and are not undertaking layoffs at scale.

Significant stimulus is arriving via deregulation as well as tax and withholding changes.

Inflation remains above target, but further progress is expected.

Both job growth and spending have been narrowly focused across the economy.

The sustained inflation overshoot since 2021 should be taken seriously, as it can shape future inflation dynamics.

Slow growth in the labour supply, driven by declining immigration and low fertility rates, is a key long-term concern.

• GBP/JPY extends gains as the Yen stays under pressure amid concerns over PM Sanae Takaichi’s expansionary fiscal stance.
• Markets remain focused on Japan’s February 8 snap election.
• Attention shifts to the UK, where the Bank of England is widely expected to hold interest rates at 3.75% on Thursday.

The British Pound (GBP) strengthens against the Japanese Yen (JPY) on Tuesday, as the Yen remains under broad pressure amid market concerns over Prime Minister Sanae Takaichi’s expansionary fiscal stance. At the time of writing, GBP/JPY is trading near 213.26, rising for a third straight day.

Investor focus is squarely on Japan’s snap election on February 8, after PM Takaichi dissolved the lower house last month. A decisive majority for the ruling Liberal Democratic Party (LDP) would be seen as strengthening Takaichi’s mandate to push ahead with a more expansionary fiscal agenda, reviving concerns that higher government spending could add to Japan’s already heavy public debt burden.

Meanwhile, the Yen’s excessive weakness remains a key concern among Japanese authorities. Japan’s Finance Minister Satsuki Katayama said on Tuesday that she would not comment on whether any foreign exchange intervention had been conducted, following market reports of a so-called “rate check” that briefly triggered a short-lived correction in the Yen.

Katayama added that Japan will continue to closely coordinate with US authorities, based on the joint Japan-United States statement issued in September last year, and will respond appropriately, keeping intervention risks in focus.

On the data front, the Japanese economic calendar is relatively light this week, leaving the spotlight on the UK, where the Bank of England (BoE) is set to announce its interest rate decision on Thursday.

Markets widely expect the BoE to keep interest rates unchanged at 3.75% on Thursday. The decision comes as inflation pressure remains elevated, with the headline Consumer Price Index (CPI) accelerating to 3.4% YoY in December from 3.2% in November.

However, investors still see room for rate cuts later this year after policymakers said at their previous meeting that the scale and timing of further easing would depend on how the inflation outlook evolves, noting that policy is likely to follow a gradual downward path.

Commerzbank Research Team notes a significant decline in Oil prices, with Brent trading down over USD 4 from last week's close. The report attributes the drop to geopolitical tensions and production adjustments from OPEC+. It notes that the outlook for oil supply may become more abundant as production targets remain unchanged, with key decisions expected in April.

Oil price outlook amid geopolitical tensions

"The oil market also started the week with sharp declines: while a barrel of Brent oil still cost more than USD 70 at the end of last week, it is currently trading at a good USD 4 less."

"OPEC+ producer countries with voluntary production cuts decided over the weekend to keep the agreed production targets unchanged in March. This came as no surprise and had been signalled by delegates in advance."

"This is because the agreement decision made in November not to further increase production targets is expiring at the end of March."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Remarks from Federal Reserve Governor Stephen Miran lean decisively dovish, challenging the idea that current policy settings remain appropriate. The focus is on subdued underlying inflation, limited pressure from market yields, and scope for sizeable rate cuts this year.

Key Quotes

Warsh is a fantastic choice to lead the Fed.

The Fed needs to cut rates by about a percentage point this year.

Underlying inflation is not a problem.

Market yields have not gone up by that much.

Better growth in the future does not require higher interest rates.

There is not much to read into recent volatility in metal markets.

In the longer run, a smaller Fed balance sheet would be preferable.

Achieving a smaller balance sheet would require further regulatory changes.

Monetary policy is currently too tight.