Forex News

BNY's Head of Markets Macro Strategy Bob Savage highlights that the U.S. Dollar has remained in a 95–99 range even as the LME Metals Index has surged, breaking a long-standing negative correlation. He notes that the USD index’s link to Fed policy is different this cycle, with fewer 2026 rate cuts priced, while ongoing FX hedging demand and risk reduction temper any strong Dollar rally.

Correlation break with LME metals

"The negative correlation between the U.S. dollar and the LME Metals Index is long-standing and significant."

"What stands out is when that correlation breaks, as it has in 2026."

"The U.S. dollar has traded in a 95 to 99 range while metals prices have surged – a divergence not seen since COVID."

"Scarcity and stockpiling now explain more of the price action than real-rate valuation dynamics."

"The USD index’s link to Fed policy also differs this cycle, with investors pricing fewer 2026 rate cuts."

"However, the dollar has not rallied back, suggesting that ongoing FX hedging demand still plays a significant role. FX risk reduction and supply-chain concerns suggest global investors fear broader financial instability more than a panic USD collapse."

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

Brown Brothers Harriman's (BBH) Elias Haddad notes USD/CAD is directionless around 1.3675 ahead of Canada’s Q4 GDP release, with consensus expecting a modest contraction versus the Bank of Canada’s stall forecast. Haddad argues easing core inflation allows the BOC to keep rates steady, and he expects USD/CAD to hold above 1.3600 near term with resistance at 1.3800.

BOC steady stance underpins range trade

"USD/CAD is directionless around 1.3675."

"The Bank of Canada (BOC) estimates real GDP growth to stall after rising 2.6% SAAR in Q3 because of inventory destocking. Consensus is more downbeat with a -0.2% SAAR decline in Q4 penciled in. "

"The BOC is in good position to keep the policy rate on hold at 2.25% for some time as core inflation pressures have eased and tracking the bank’s projection."

"The swaps curve price-in steady rates over the next twelve months."

"USD/CAD will likely hold above 1.3600 in the near term, with resistance offered at 1.3800 (the 200-day moving average)."

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

• The Japanese Yen gives up half of its early gains against the US Dollar as the former struggles to hold gains.
• Soft Tokyo CPI and the nomination of two new BoJ board members are capping the Yen.
• Investors await the US PPI data for fresh cues on the Fed’s monetary policy outlook.

The Japanese Yen (JPY) surrenders half of its early gains against the US Dollar (USD) during the European trading session on Friday. The USD/JPY pair rebounds to near 155.90 as the JPY falls back, but is still 0.15% down.

Japanese currency struggles to hold gains amid growing concerns over speculation that the Bank of Japan (BoJ) will raise interest rates in the near term.

Hawkish BoJ prospects have come under pressure, following the entry of two new officials into the central bank’s nine-member board, and signs of easing price pressures.

Earlier this week, the administration announced the nomination of two members: Toichiro Asada and Ayano Sato for the BoJ’s board, at times when a report from Mainichi daily showed that Japan's Prime Minister (PM) Sanae Takaichi’s comments in meeting with Governor Kazuo Ueda on February 16 were in contrast to tightening monetary policy in the near term.

Earlier in the day, the data showed that Tokyo Consumer Price Index (CPI) ex. Fresh Food growth cooled down to 1.8% Year-on-Year (YoY) from 2% in January, but remained higher than estimates of 1.7%.

Meanwhile, the US Dollar (USD) trades broadly calm ahead of the United States (US) Producer Price Index (PPI) data for January, which will be published at 13:30 GMT. During the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades flat around 97.75.

Investors will pay close attention to the US PPI data to get fresh cues on the Federal Reserve’s (Fed) monetary policy outlook.

Jan von Gerich at Nordea notes that US data flow has been light, but a December upside surprise in core PCE suggests price pressures may be easing more slowly than CPI implies. He argues this supports the Federal Reserve staying on hold, and Nordea does not expect further rate cuts even after Kevin Warsh replaces Jerome Powell.

Sticky inflation backs steady Fed policy

"Late last week, there was an upside surprise in the Fed’s preferred inflation measure, the core PCE, and though the data were for the month of December compared to the latest CPI figure for January, price pressures may not be falling quite as rapidly as suggested by the CPI data, which will support the Fed on hold for now."

"The Fed took a more balanced stance towards the labour market risks already at the January meeting and can afford to retain a wait-and-see attitude for now."

"We do not expect any further cuts from the central bank, including when Kevin Warsh is set to take over from Jerome Powell."

"Risks remain tilted towards further rate cuts, though."

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

TD Securities’ Global Strategy Team forecasts Canadian real GDP to contract by 0.4% annualized in Q4, driven by weaker domestic demand, falling household goods consumption and softer housing activity, partly offset by government spending and net exports. However, the bank expects a 0.2% gain in December GDP and continued 0.1–0.2% growth in January, setting a firmer base for Q1.

Q4 softness but Q1 outlook improves

"We look for real GDP to contract by 0.4% q/q (saar) in Q4 National Accounts, led by further weakness in domestic demand."

"Household goods consumption should see its second consecutive decline after the 2.0% contraction in Q3, alongside a modest increase for services, while softer housing activity contributes to another drag from residential investment."

"Government spending should provide the main source of strength in Q4, along with a positive contribution from net exports."

"Growth conditions look considerably brighter for December's industry-level GDP where we look for a 0.2% advance underpinned by strength in services."

"We also look for new flash estimates to show continued strength (0.1%-0.2%) in January, which would help put Q1 GDP on a stronger footing."

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