Forex News

Deutsche Bank Senior Economist Eric Heymann notes that the downturn in Germany's manufacturing sector has ended, with a projected increase in production of 2 to 3% in 2026. This marks the first rise in industrial production since 2021. Heymann notes that while the recovery is promising, structural reforms are essential for sustained growth.

Fiscal stimulus to drive recovery

"For 2026, we are confident that production in the manufacturing sector in Germany will rise again. An increase of 2 to 3% seems realistic to us. This would be the first increase in industrial production since 2021 and only the second since 2019."

"There is a chance that the expected increase in production this year can continue in 2027, because fiscal policy will continue to provide impetus then too and could gain broader impact."

"In the entire manufacturing sector, however, production in 2025 was 15% below its peak (2018). The data shows that the expected recovery in industrial production in 2026 and 2027 would by no means offset the losses of previous years. Without structural reforms, a return to previous production levels is hardly possible."

"For the entire manufacturing sector, however, there is a chance that the expected increase in production this year can continue in 2027, because fiscal policy will continue to provide impetus then too and could gain broader impact."

"These figures are an indication that expansionary fiscal policy is increasingly translating into higher orders for industrial companies (not least for defense goods). Improved tax depreciation conditions for investments could also provide impetus in 2026. Furthermore, (energy-intensive) companies are being relieved on the cost side by government support measures (e.g., temporary industrial electricity price, federal subsidies for grid fees)."

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

Federal Reserve (Fed) Bank of Atlanta President Raphael Bostic said that inflation has been too high for too long, adding that the Fed can’t lose sight of inflationary concerns in an interview with Bloomberg on Friday.

Key takeaways:

I have no idea what Warsh has in mind for the Fed regime change.

The economy has been K-shaped for a while, before the pandemic.

We need to keep policy restrictive to get inflation to 2%. It will be April or May before data gives clear signals.

The Fed can't lose sight of inflationary concerns.

Inflation has been too high for too long, at plateau.

Businesses see upside potential in the economy.

Tariff effects will have run through by middle of year.

Sentiment in the district is one of cautious optimism.

I think it's doable to go back to scarce reserves.

I don't see Fed mission creep argument.

The Fed might need to lean more into non-official data."

ABN AMRO’s Group Economics highlights that the brief US government shutdown has delayed key labour and inflation data, with methodological changes set to distort January readings. Analysts expect the unemployment rate to hold at 4.4% and Nonfarm Payrolls at 50k, while headline and core CPI are forecast at 0.3% m/m and 2.5% y/y before re-accelerating later.

US labor market and inflation insights

"Due to the short government shutdown, the labour market report has been postponed until next week Wednesday. The report will be affected by methodological updates. The household survey will incorporate new census details, leading to a substantial drop in employment and the labour force in January."

"We expect the unemployment rate to remain at 4.4%. Non farm payrolls will also be influenced by an update to the birth–death model. We expect payrolls to come in lower as a result, though with reduced risk of future negative revisions. For this Friday, we expect a 50k reading."

"The CPI report is also delayed, and will now be released next Friday. We expect both headline and core inflation to come in at 0.3% m/m, dropping both y/y rates at 2.5% due to favourable base effects. It is likely to pick up again over the coming months."

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

• UoM Consumer Sentiment Index came in better than expected in February's flash reading.
• USD Index stays in negative territory below 98.00.

Consumer confidence in the US improved slightly in February, with the University of Michigan's Consumer Sentiment Index rising to 57.3 from 56.4 in January. This print came in better than the market expectation of 55.

The Consumer Expectations Index edged lower to 56.6 from 57 in this period, while the 1-year Consumer Inflation Expectation declined to 3.5% from 4%. Finally, the 5-year Consumer Inflation Expectation ticked up to 3.4% from 3.3%.

Assessing the survey's findings, "while sentiment is currently the highest since August 2025, recent monthly increases have been small—well under the margin of error—and the overall level of sentiment remains very low from a historical perspective," noted Surveys of Consumers Director Joanne Hsu, and added: "Concerns about the erosion of personal finances from high prices and elevated risk of job loss continue to be widespread."

Market reaction

The US Dollar (USD) Index remains in the lower half of its daily range after this report and was last seen losing 0.35% at 97.60.

• The Australian Dollar advances against the US Dollar after erasing part of its recent losses.
• Comments from the Reserve Bank of Australia strengthen expectations of another rate hike as early as May.
• The US Dollar remains fragile despite the risk of a slower adjustment in Federal Reserve policy.

AUD/USD rebounds on Friday and trades around 0.6995 at the time of writing, up 0.73% on the day. After being weighed down by a broad-based sell-off in global equities and risk-sensitive assets, the pair benefits from renewed demand for the Australian Dollar, supported by firmer expectations of monetary tightening in Australia.

The Australian Dollar had recently struggled amid heightened risk aversion, triggered by a correction in technology stocks linked to concerns over heavy investment in artificial intelligence. Often seen as a liquid barometer of global risk sentiment, the Australian currency was temporarily sidelined in favor of safe-haven assets.

Support returned following comments from Reserve Bank of Australia (RBA) Governor Michele Bullock. She stated that the board had raised the policy rate because the Australian economy is more capacity-constrained than previously assessed, requiring a more restrictive monetary stance. According to Bullock, the central bank must curb demand growth unless supply capacity expands more rapidly. These remarks revived expectations of another rate hike, with markets now assigning a higher chance to additional tightening as early as May.

Recent Australian macroeconomic data have also provided some support. Australia’s Trade Balance widened to AUD 3.373 billion in December, up from AUD 2.597 billion previously and slightly above market expectations. Exports rose 1.0% MoM, mainly driven by metals and mineral ores, while imports fell 0.8%, reflecting softer domestic demand. Meanwhile, S&P Global PMI surveys show a sharp acceleration in services sector activity, reinforcing the view of a still-resilient economy.

On the US side, the US Dollar remains under pressure. The US Dollar Index (DXY) slips 0.28% on Friday and trades around 97.68 at the time of press, after two consecutive days of gains. Recent US labor market data point to a cooling job market, fueling expectations of monetary easing from the Federal Reserve (Fed). Weekly Initial Jobless Claims increased to 231,000, while private job creation measured by the ADP survey came in well below expectations.

Even as some Fed officials urge caution and stress that inflation has yet to show clear signs of easing, markets continue to price in rate cuts later this year. This backdrop limits the US Dollar’s rebound potential and allows AUD/USD to hold in positive territory, as investors await fresh macroeconomic catalysts, including upcoming US consumer sentiment data.