US
USD is up against most major currencies with the DXY index retracing nearly 61.8% of its January slump. The sell-off in tech stocks, driven by software stocks, continues to weigh on global equity markets and the commodity complex. Regardless, resilient global economic activity, less restrictive monetary policy, and expansionary fiscal policy remain supportive of risk assets.
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 the risk is that it cuts less than is currently priced in (50bps by year-end). Yesterday, Fed Governor Lisa Cook echoed the FOMC’s less dovish bias pointing out she sees the US economy “as continuing to be resilient”, “risks as tilted toward higher inflation”, and the labor market “roughly in balance.”
Nonetheless, 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. USD also faces important structural drags - fading confidence in US trade and security policy, politicization of the Fed, and worsening US fiscal credibility.
A handful of US job market updates are due today: January Challenger job cuts, weekly jobless claims, December JOLTS, and January Revelio Labs employment.
In November, the JOLTS report was mixed. Both the hiring and opening rates dipped, adding to signs of weakening labor demand. But the quits rate ticked up, and the layoffs rate ticked down, suggesting workers are more confident in finding another job while firms are holding on to workers.
There is no consensus estimate for Revelio Labs employment, but in December it showed the US economy added 71.1k jobs. 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.
ADP private payrolls growth underwhelmed in January and details point to ongoing labor market fragility. ADP employment printed at +22k (consensus: +45k) vs. 37k in December (revised down from +41k). Gains were once again driven by the non-cyclical education and health services sector (+74k). Professional and business services lost -57k jobs, the most since August 2024. When the non-cyclical sector dominates job creation, it has historically signaled an impending labor market slowdown.
US services sector activity remained resilient in January, but details were disappointing. The ISM services index printed at 53.8 (consensus: 53.5) vs. 53.8 in December (revised down from 54.4). Employment growth fell to near stall speed and Prices Paid growth picked up. New Orders growth momentum eased sharply but that was more than offset by a deeper contraction in Inventories, indicating that firms may need to ramp up production as demand exceeds supply.
UK
GBP and gilts plunged driven by UK political uncertainty. Prime Minister Keir Starmer is facing intense leadership speculation over his decision to appoint Peter Mandelson as US ambassador, despite knowing about his connection to Jeffrey Epstein. Markets worry that a Starmer exit could push the Labor government towards more left-leaning fiscal and regulatory policies.
Bank of England (BOE) policy decision and Monetary Policy Report are up next (12:00pm London, 7:00am New York). The BOE is widely expected to keep rates on hold at 3.75% after voting 5-4 to cut rates by 25bps at the December 18 meeting. A 7-2 vote split is expected this time around, with staunch doves Swati Dhingra and Alan Taylor favoring a 25bps cut.
The BOE is also poised to reiterate its cautious easing guidance that “Bank Rate is likely to continue on a gradual downward path” but “judgements around further policy easing will become a closer call.”
The Monetary Policy Report will include updated economic forecasts that factor in the effects of the November 2025 budget. We don’t expect material changes to the bank’s central projection because the fiscal drag in 2025/26 was marginally less than projected last March, and a shade higher in 2026/27.
Overall, persistently above target UK inflation suggests the BOE can afford to wait before resuming easing to support weakening labor market conditions. The swaps curve price-in the next 25bps cut in June and 76% odds the BOE delivers a total of 50bps of easing to 3.25% over the next twelve months. We expect GBP/USD to stabilize closer to 1.3500.
EUROZONE
EUR/USD is trading on the defensive just under 1.1800. The ECB is widely expected to leave the policy rate unchanged at 2.00% for a fifth consecutive meeting (1:15pm London, 8:15am New York). Eurozone core inflation is stabilizing around the bank’s 2% target and leading economic indicators point to an encouraging growth outlook. ECB President Christine Lagarde’s press conference is 30mins after the policy decision.
The risk is the ECB stresses that a further appreciation of the euro is a downside risks to growth and inflation. ECB scenario analysis shows that a 4.3% rise in EUR/USD to 1.2100 would shave -0.1pts off its 2026 baseline growth and inflation forecasts. We expect EUR/USD to trade closer to 1.1600 in the near term.
CZECH REPUBLIC
Czech National Bank (CNB) policy decision is today (1:30pm London, 8:30am New York). CNB is widely expected to keep the policy rate at 3.50% for a sixth consecutive meeting after lowering them to that level in May 2025. The risk is CNB shifts from a neutral to dovish bias. CNB Deputy Governor Jan Frait said recently “rates may stay broadly stable this year or dip by at most 50 basis points” because of external forces.
MEXICO
Mexico’s central bank (Banxico) policy decision is today (7:00pm London, 2:00pm New York). Banxico is widely expected to keep rates on hold at 7.00% after delivering 300bps of easing last year. Banxico can afford to keep rates unchanged for a while as the real policy rate (3.37%) is now within bank’s neutral range estimate [1.8% to 3.6%, with a midpoint of 2.7%].
