The US Dollar fell over the week, despite January Nonfarm Payrolls showing 130K new jobs and the Unemployment Rate easing to 4.3% from 4.4%. The DXY traded near 96.80, down from 97.15 after a softer January CPI, with US December PCE due on Friday.
EUR/USD traded near 1.1880 after Eurozone flash Q4 GDP came in at 1.4% year-on-year versus 1.3% expected. AUD/USD hovered near 0.7080 close to a three-year high, with Australia’s Business Confidence and Wage Price Index due Wednesday, then jobs data and the flash S&P Global Composite PMI on Thursday.
Major Pairs And Near Term Drivers
USD/CAD traded near 1.3600 ahead of Canadian December Retail Sales on Friday. USD/JPY traded near 152.80, with Japan’s National CPI due Thursday, while GBP/USD sat near 1.3650 with UK PPI and RPI on Wednesday and UK Retail Sales on Friday.
Gold traded near $5,038 after recovering most of Thursday’s losses, below January’s $5,598 peak. Scheduled speakers run from 14–20 February, including Lagarde on 14, 15 and 20 February, multiple Fed speakers, and RBNZ’s Breman on 19 February.
Key data include Japanese flash Q4 GDP (15 February), RBA minutes and Canadian January CPI (17 February), the RBNZ rate decision and FOMC minutes (18 February), Australia employment and unemployment (19 February), plus UK Retail Sales, German and Eurozone PMIs, US December core PCE, and February US S&P Global PMIs (20 February).
Looking back to this time in 2025, we saw the US Dollar under significant pressure around the 96.80 level. Softer inflation data had fueled expectations that the Federal Reserve was on the verge of cutting rates. This sentiment shaped market positioning for months, anticipating a weaker dollar.
How The Setup Has Changed Since Then
Today, the landscape is different, as the US Dollar Index has shown resilience, recently trading above 104.50. The anticipated rate cuts of 2025 did not materialize as aggressively as expected, with core inflation proving sticky through the end of the year, consistently staying above the Fed’s 2% target. Traders should now be wary of being short the dollar, and options markets are showing lower implied volatility for the DXY compared to the spike we saw mid-last year.
While the Eurozone showed surprising strength in late 2024, recent data from Q4 2025 indicates a slowdown, with GDP growth revised down to just 0.1%. This puts the European Central Bank in a difficult position, likely leading them to cut rates before the Fed does. This policy divergence suggests potential for further downside in EUR/USD, and traders could consider bearish positions or buying puts ahead of upcoming ECB speeches.
The Reserve Bank of Australia’s hawkish stance from last year has softened considerably. With Australia’s latest quarterly CPI figure for Q4 2025 coming in at 4.1%, down from over 5% earlier in the year, the RBA is now firmly on hold. This removes the key driver that pushed AUD/USD to its highs, making it vulnerable to shifts in global risk sentiment.
Sterling continues to be influenced by domestic inflation, which, while lower than its peak, remains the highest among G7 nations as of January 2026. This stubbornness forces the Bank of England to maintain high interest rates, even as the economy stagnates. This creates choppy conditions for GBP/USD, making range-trading strategies more suitable than chasing directional breakouts.
The excitement around gold we saw in early 2025 has faded as persistently high interest rates in the US increased the opportunity cost of holding non-yielding bullion. Despite the high prices mentioned last year, gold has been unable to breach those levels, consolidating in a new range as markets accept a ‘higher-for-longer’ rate environment. Traders should watch real yields closely, as any sign of them falling could reignite interest in gold.
In the weeks ahead, the primary theme is central bank divergence, a significant shift from last year’s unified focus on inflation. We believe trading pairs that reflect this divergence, such as being long USD against currencies with more dovish central banks like the EUR or CAD, offers a clear strategy. Volatility may spike around key data releases, particularly the upcoming US PCE report, so using options to define risk could be a prudent approach.
