US
USD pared back some of yesterday’s gains, mostly against commodity sensitive currencies. The commodity complex is rallying underpinned by a surge in AI capital expenditures plans. Amazon, Google, Microsoft, and Meta have forecast to spend a total of about $660bn in 2026 (2.1% of US GDP) for new data centers and equipment. That’s 60% higher than in 2025 and 165% higher than in 2024.
Commodities, particularly precious and industrial metals, will keep benefiting from the ongoing AI spending boom. Every new server and power system requires large amounts of silver, gold, platinum, palladium, and copper, for high performance chips, wiring, and energy infrastructure. AUD, CLP, ZAR, BRL, MXN, and PEN all stand to outperform.
The February University of Michigan consumer sentiment survey is due today (3:00pm London, 10:00am New York). The headline is expected at 55.0 vs. 56.4 in January, well below the long run average at 84.1. Interestingly, Fed Governor Lisa Cook offered a good explanation why consumer sentiment, by many measures, is lower than one would expect in a solid economy.
Cook highlights four main reasons households are reporting low sentiment: (i) households are worse off relative to recent history, (ii) the introduction of AI has raised uncertainty about the job market, (iii) sharp increase in housing costs and another major expenses (health care and education), and (iv) the high inflation experienced over the past five years. Cook concludes that while low sentiment is troubling, it doesn’t point to excess slack that monetary policy can address.
Yesterday’s US jobs data pointed to ongoing labor market fragility and reinforced Fed funds futures pricing of 50bps of easing by year-end:
Layoffs remain low but are rising. Initial jobless claims for the week ending January 31 overshot expectations at 231k (consensus: 212k) vs. 209k the previous week. Still, initial jobless claims remain within the range that’s been in place since 2022. In parallel, the volatile Challenger survey showed job cuts surged in January, the highest January total since 2009.
Labor demand remains weak. Revelio labs nonfarm payrolls fell -13.3k in January, and December gains were revised down to +34.4k from +71.1. According to Revelio Labs, its employment data has a 0.74 correlation coefficient with the BLS non-farm payrolls (NFP) survey. For reference, NFP rose 50k in December. The January NFP print has been rescheduled for Wednesday, February 11.
The December JOLTS data was mixed. The hiring rate ticked up 0.1pts to 3.3% but the 0.3pts decline in the job opening rates to 3.9%, the lowest since April 2020, points to softer labor demand. Encouragingly, both the quit and layoffs rates were unchanged at 2.0% and 1.1%, respectively, indicative of a stable labor market.
CANADA
Canada January labor force survey is due today (1:30pm London, 8:30am New York). The economy is expected to add 5k jobs vs. 10.1k in December and the unemployment rate is seen unchanged at 6.8%. Leading indicators point to a soft labor market. Job vacancies have fallen to their lowest level since October 2017, the share of businesses reporting labor shortages remains low, hiring intentions are still weak, and the share of firms planning to lay off staff in the next twelve months rose to its highest level since Q2 2016.
The Bank of Canada (BOC) is in good position to keep the policy rate on hold at 2.25% for some time. Rate-hike expectations have collapsed, with the swaps curve pricing out almost all odds over the next twelve months, versus nearly 70% in mid-January. Bottom line: USD/CAD will likely hold above 1.3600 in the near term, with resistance offered at 1.3825 (the 200-day moving average).
SWEDEN
SEK is underperforming most major currencies. Sweden inflation cooled more than expected in January, challenging the Riksbank’s guidance that it’s done easing. CPIF dipped 0.1pts to 2.0% y/y (consensus: 2.1%, Riksbank forecast: 1.6%) while CPIF ex-energy plunged 0.6pts to 1.7% y/y, lowest rate since September 2021 (consensus: 1.9%, Riksbank forecast: 2.0%).
In its December Monetary Policy Report, the Riksbank penciled in the policy rate on hold at 1.75% until Q4 2026, followed by a 25bps hike over the subsequent two years. In contrast, the swaps curve is now pricing in small odds of a cut in the next twelve months.
We don’t expect the Riksbank to deliver another cut. But the risk is the bank softens its on-hold guidance at its next March 19 policy meeting, which can drag SEK lower in the near term. There’s still significant spare capacity in Sweden’s economy, with the output gap projected to average -0.6% of potential GDP over 2026 vs. -1.6% in 2025.
EUROZONE
EUR/USD is a little firmer near 1.1800 after dropping under 1.1770 overnight. As was widely expected, the ECB left the policy rate unchanged at 2.00% for a fifth consecutive meeting. ECB President Christine Lagarde confirmed it was a unanimous decision and reiterated that policy is in a good place.
Indeed, the ECB points out that “inflation should stabilise at its 2% target in the medium term” and “the economy remains resilient in a challenging global environment.” That reinforces the case that the ECB will keep rates on hold for some time.
Importantly, Lagarde struck a relaxed tone on the euro’s strength. Lagarde highlighted that the impact of FX move since last year are part of the ECB’s baseline scenario, implying that the EUR/USD appreciation poses only limited downside risk to growth and inflation.
The swaps curve price-in steady rates over the next twelve months, and we see no immediate catalyst for a repricing. We expect EUR/USD to trade a bit lower in the near-term and stabilize closer to its 100-day moving average (1.1678).
UK
GBP/USD clawed back some of yesterday’s losses triggered by the double whammy of heightened UK political uncertainty and a surprisingly dovish BOE hold. As was widely expected, the BOE left the policy rate unchanged at 3.75%. However, the bar for more easing has been lowered:
First, it was a split decision as the MPC voted 5-4 in favor of a hold. Andrew Bailey, Megan Greene, Clare Lombardelli, Catherine Mann and Huw Pill supported a hold. Sarah Breeden, Swati Dhingra, Dave Ramsden and Alan Taylor supported a cut. Just one swing vote would be needed to tilt the balance in favor of a cut.
Second, the BOE tweaked its cautious easing guidance by scrapping reference to “a gradual downward path” to the Bank Rate. That suggests the BOE could cut sooner rather than later. Finally, the BOE slashed its inflation and raised its unemployment rate projections.
In our view, GBP/USD has room to test its 200-day moving average around 1.3430 as UK rate expectations adjust lower. Swaps market bet for a BOE March rate cut jumped to nearly 70% yesterday from just under 20%.
INDIA
The Reserve Bank of India (RBI) voted unanimously to keep the policy rate unchanged at 5.25% following 125bps of cuts in 2025. Today’s policy decision was in line with expectations. Importantly, the RBI signaled that it’s done easing. The RBI retained its neutral stance and was more constructive on the growth outlook noting that “the successful completion of trade deals augurs well for the economic outlook.” The swaps curve price in 50bps of hikes in the next twelve months
INR is underperforming all EMFX largely because RBI Governor Sanjay Malhotra leaned against market expectations for rate hikes. Malhotra stressed that the bank’s neutral stance implies steady rates in the next 9 to 12 months while adding that the real rate of interest is still high. Regardless, the US-India trade deal struck this week should help USD/INR retrace most of the rally that followed the August peak in trade tensions - when the US slapped 50% duties on India.
