Forex News

The report from Brown Brothers Harriman (BBH) indicates that the USD is trading firmly against most major currencies, with Treasury yields ticking up. In the near term, the USD has room to retrace some of its recent losses as the Fed is not in a rush to ease policy. However, a USD bounce is viewed as a sell-the-rally opportunity due to ongoing structural drags on the currency.

USD shows signs of short-term recovery

"In the near-term, USD has room to retrace some of its recent losses because the Fed is in no rush to resume easing and risk cutting rates less than is currently priced in (50bps by year-end). However, a USD bounce would be a sell-the-rally opportunity."

"The Fed still has more easing in the pipeline while most other major central banks are done cutting or started to raise rates (RBA). USD also faces important structural drags - fading confidence in US trade and security policy, politicization of the Fed, and worsening US fiscal credibility."

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

The EUR is slightly down against the USD, showing signs of consolidation as it approaches the ECB's policy decision. Recent economic data, including services PMI and CPI, have aligned with expectations, providing little impetus for ECB policymakers. The market anticipates a hold on policy changes, reflecting a neutral communication stance from the ECB, note Scotiabank's Shaun Osborne and Eric Theoret.

EUR consolidates ahead of ECB meeting

"This week’s price action is suggestive of consolidation, with congestion around 1.18 ahead of Thursday’s ECB policy decision."

"The euro area’s final services PMI’s softened slightly (in low expansion), and the latest (preliminary) CPI data were in line with expectations, printing 1.7% y/y on headline and 2.2% y/y on core and offering little for ECB policymakers ahead of the Feb 5 meeting."

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

Inflation in the Euro-area has decreased to 1.7% y/y in January, while core inflation remains stable at 2.2%. ECB is expected to maintain its current policy stance due to the calm inflation outlook, despite some uncertainty from volatile energy prices. Nordea's report, authored by Tuuli Koivu and Anders Svendsen, suggests inflation will stay below 2% for most of 2026, with potential rate hikes not anticipated until the second half of 2027.

Inflation trends and ECB policy outlook

"Inflation declined more clearly below the target to 1.7% y/y in January. However, core inflation slowed only slightly to 2.2%, and broad price pressures are still anchored around the ECB’s target, allowing the central bank to continue standing still."

"We expect inflation to stay below 2% for most of 2026 and to return to the ECB’s target permanently only in the latter part of the year but there is certainly a lot of uncertainty related to the exact profile of the headline inflation given e.g. the recently volatile food and energy prices."

"This profile, however, together with robust core inflation numbers and the expected gradual acceleration in GDP growth, implies that the ECB is in no hurry to change policy rates in either direction."

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

• The US Dollar lacks direction after a sharp disappointment in US private employment.
• Investors digest weaker US data ahead of the next key economic releases.
• The Swiss National Bank remains cautious about risks to price stability.

USD/CHF trades without a clear trend around 0.7750 on Wednesday at the time of writing, showing an almost unchanged performance on the day. The pair remains trapped in a narrow range as the US Dollar (USD) struggles to find a clear catalyst following the release of mixed US macroeconomic data.

The release of the Automatic Data Processing (ADP) Employment Change report showed that US private sector payrolls rose by only 22,000 jobs in January, well below market expectations of 48,000. This reading confirms a gradual slowdown in US labor market momentum, even though annual wage growth remains steady at 4.5%.

The US Dollar Index (DXY), which measures the US Dollar’s performance against a basket of six major currencies, trades without a clear direction as investors reassess their expectations for monetary policy. According to the CME FedWatch tool, markets continue to expect the Federal Reserve (Fed) to leave interest rates unchanged at the March meeting, within the 3.50%-3.75% range, but weaker employment data may revive debate about the future policy outlook.

On the Swiss side, the Swiss Franc (CHF) shows mixed performance. Investors remain focused on the outlook for the Swiss National Bank (SNB) in an environment of still subdued inflation. Earlier this week, SNB Chairman Martin Schlegel reiterated that price stability remains the central bank’s main concern, stressing its determination to act if necessary to contain inflation risks.

Attention now turns to the release of the S&P Global Services Purchasing Managers Index (PMI) and the Institute for Supply Management’s (ISM) Services PMI later in the day, which could provide further direction to the US Dollar and the USD/CHF pair.

Deutsche Bank Research Team highlights a recurring market pattern in 2026 characterized by sharp sell-offs followed by rapid recoveries. Despite various causes for these sell-offs, they have not resulted in lasting damage, with the S&P 500 showing resilience. The report emphasizes the importance of distinguishing between headline noise and a strong macroeconomic backdrop, noting that significant downturns typically align with negative macro outlooks, which are not currently evident.

2026 market patterns and resilience

"2026 is only a few weeks old, but there’s been a repeated market pattern of sharp sell-offs that quickly recover, sometimes within hours."

"Although these have had a variety of causes, the consistent theme is they fail to inflict lasting damage, despite initial fears that it might finally be the start of a larger sell-off."

"Clearly, we’ve seen large sectoral moves, particularly in the software space, but the aggregate indices have been fairly steady overall."

"But it’s important for investors to separate headline noise from an otherwise robust macroeconomic backdrop."

"When we’ve historically seen more durable market downturns, it’s consistently coincided with a fundamentally negative reassessment in the macro outlook, which we haven’t yet seen today in any meaningful sense."

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

Private sector employment in the US rose 22,000 in January, and annual pay was up 4.5%, the Automatic Data Processing (ADP) Research Institute reported on Wednesday. This reading followed the 37,000 increase (revised from 41,000) recorded in December and came in worse than the market expectation of 48,000.

Commenting on the report's findings, "job creation took a step back in 2025, with private employers adding 398,000 jobs, down from 771,000 in 2024,” said Nela Richardson, chief economist at ADP.

“While we've seen a continuous and dramatic slowdown in job creation for the past three years, wage growth has remained stable,” she added.

Market reaction to ADP employment data

This report failed to influence the US Dollar's (USD) valuation. At the time of press, the USD Index (DXY) is up 0.12% on the day at 97.50.

This section below was published as a preview of the US ADP Employment Change data at 05:00 GMT.

• The US ADP Employment Change report is expected to show that job creation remains subdued.
• The ADP report is more important than usual as Nonfarm Payrolls data is delayed due to the partial US Government shutdown.
• Kevin Warsh’s appointment as the next Fed Chair and strong US economic data are boosting a US Dollar recovery.  

The Automatic Data Processing (ADP) Research Institute will release its monthly report on private-sector job creation for January on Wednesday. The so-called ADP Employment Change report is expected to show that the United States (US) economy added 48K new jobs, following the 41K new payrolls witnessed in December.

These figures will be observed with particular interest this time, as the US Bureau of Labour Statistics (BLS) announced on Monday that the release of Friday’s key Nonfarm Payrolls (NFP) report will be delayed due to a partial US government shutdown. With the ADP report as the main reference for US employment this month, a significant deviation in the final figures might have a strong impact on the US Dollar (USD).

ADP Jobs Report will test the strength of the US economic recovery

January’s ADP Employment Change report comes in a context of improving optimism about the US economic outlook. A string of positive macroeconomic releases, namely the Q3 Gross Domestic Product (GDP) report and strong manufacturing activity, coupled with sticky inflation levels, have prompted traders to dial down bets of interest rate cuts by the Federal Reserve (Fed), at least until June.

This has boosted a recent US Dollar recovery, also triggered by investors’ relief after US President Trump confirmed that former Fed governor Kevin Warsh will replace Jerome Powell as Fed Chair at the end of his term.

The US economy showed a robust 4.4% anualized growth in the third quarter, according to the final GDP estimation released in January. Apart from that, factory activity expanded at its fastest pace in more than three years, according to January’s ISM Manufacturing PMI report, retail consumption bounced up strongly in November, and consumer sentiment data show a steady improvement over the last three months.

Bearing this in mind and considering that consumer inflation remains steady at levels well above the Fed’s 2% target for price stability, employment figures will be the last piece in the puzzle to assess the US central bank’s near-term monetary policy path.

January’s ADP report is expected to confirm that the labor market remains steady. Market consensus suggests that employment growth remains sluggish, but that employers are not firing either, or at least not to a large extent. This scenario cements the Fed’s stance of a cautious approach to rate cuts. 

Atlanta Federal Reserve President Raphael Bostic stated at a panel speech on Monday that the central bank is close to the neutral rate and that monetary policy should remain “mildly restrictive” to get inflation back to the target. Unless the ADP shows a severe setback, this view would apply to the vast majority of the central bank’s monetary policy committee.

When will the ADP Report be released, and how could it affect the USD?

ADP will release the US Employment Change report on Wednesday at 13:15 GMT, and it is expected to show that the private sector added 48K new jobs in January.

The immediate US Dollar trend is positive. The US Dollar Index (DXY), which measures the value of the Greenback against six major currencies, appreciated 2% in the past week. Market’s relief following the appointment of former Fed Governor Kevin Warsh as the next Fed Chairman halted the US Dollar’s bleeding, while bright US economic data, a trade deal with India, and hopes that negotiations with Iran might de-escalate tensions in the Middle East, keep the Greenback supported.

Guillermo Alcala, FX Analyst at FXStreet, highlights resistance levels in the 98.00 area and 98.48 as the main hurdles for USD bulls: “The US Dollar Index is on a bullish correction amid a broader bearish trend, and bulls need to breach resistance at a previous support area around 98.00 to confirm a larger recovery and expose the January 23 high, at 98.48, ahead of the 100.00 round level.

On the downside, Alcalá sees the 97.05 level as key to maintain the immediate bullish recovery alive: “A bearish reaction below the 97.00 level would put the current recovery in question and increase pressure towards the January 28 close, at the 96.35 area.