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Philadelphia Fed President Patrick Harker said in a speech today that the US economy continues to operate from a “position of strength”. While inflation remains above target, Harker expressed confidence that it is on track to ease over time, supported by resilient economic growth and a balanced labor market.

These factors, in his view, are "reasons enough for holding the policy rate steady."

Harker avoided committing to a specific timeline for policy easing but stated that he remains “optimistic” about inflation’s continued decline, which would eventually allow Fed to lower rates “over the long run”.

However, he acknowledged uncertainty surrounding new economic policies, particularly regarding tariffs and immigration policies under President Trump’s administration.

Many economists warn that a combination of higher import taxes and stricter immigration measures could fuel inflation, complicating the Fed’s job of maintaining price stability. Harker admitted that the full impact of these policies remains unknown.

AUDUSD hit new 2025 high on Monday (the highest since mid-December) in extension of broader rally in past two weeks (up nearly 5% on bounce from the lowest level in almost four years).

Weaker US dollar continue to fuel Aussie dollar’s advance, which turned the picture on daily chart positive and generating initial reversal signal.
Near-term action is moving within thick daily Ichimoku cloud and underpinned by formation of daily Tenkan/Kijun-sen) bull-cross, focusing key resistances at 0.6410/14 (daily cloud top / Fibo 38.2% of 0.6942/0.6087 downtrend).

Break of these levels to confirm reversal signal, though increased headwinds should be expected at this zone on overbought conditions and RBA’s rate decision in early Tuesday.

The Australia’ central bank is widely expected to cut interest rates by 25 basis points on Tuesday’s policy meeting, in the first rate cut in more than four years that will mark the beginning of monetary policy easing cycle.

Former top of Jan 24 (0.6330) offers immediate support, with near term bias to remain biased higher as long as the price action stays above strong 0.6300/0.6290 support zone.

Res: 0.6414; 0.6441; 0.6500; 0.6515.
Sup: 0.6330; 0.6290; 0.6235; 0.6194.

The British pound is showing little movement on Monday. In the North American session, GBP/USD is trading at 1.2592, up 0.06% on the day.

UK job growth expected to plunge

The markets are bracing for a sharp decline in employment in the three months to December, with a forecast of -130 thousand. This follows an increase of 36 thousand in the three months to November. Job growth has posted eight consecutive three-month periods of growth and the resilient labor market has eased pressure on the Bank of England to lower interest rates.

The unemployment rate is projected to creep up to 4.5% from 4.4%, and wage growth (including bonuses) is expected to rise to 5.9% in the three months to December, up from the previous release of 5.6%. Wage growth has been moving higher and is fueling inflation.

The Bank of England doesn’t meet till March 20 and after cutting rates earlier this month, back-to-back rate cuts remain unlikely. On Monday, Governor Andrew Bailey poured some cold water over last week’s better-than-expected GDP release, saying that the UK economy remained “quite static”. GDP for the fourth quarter eked out a gain of 0.1%, better than the BoE forecast of a contraction. The BoE remains concerned about sticky inflation and growing global political uncertainty.

The US ended the week with a disappointing retail sales report. January retail sales slid 0.9%, much worse than the market estimate of -0.1% and following a solid gain of 0.7% in December. This was the sharpest decline since March 2023, as severe weather and the Los Angeles fires dampened consumer spending. Annually, retail sales eased to 4.2%, down from an upwardly revised 4.4% in December and above the forecast of 3.7%.

GBP/USD Technical

• GBP/USD tested support at 1.2585 earlier. Below, there is support at 1.2539
• 1.2630 and 1.2676 are the next resistance lines

Markets

The hastily arranged summit in Paris by French president Macron stood in the center of attention today. Last week’s string of events, involving US president Trump, his Defense Secretary Hegseth and VP Vance, created a sense of urgency. Both the EU and Ukraine want a say in the talks for a ceasefire and as such in the post-war security architecture on the old continent at a time when the US is effectively folding the NATO-umbrella. The European buy-in at that negotiation table is to invest massively in its own defense capacity after not having done so for decades. That’s what is being discussed at the Paris summit today by a handful of European leaders, accompanied by NATO secretary-general Rutte and EC president Von der Leyen. Outgoing German minister for Foreign Affairs Baerbock at the sidelines of the sobering Munich Conference flagged an upcoming “large package that has never been seen in this dimension before. Similar to the euro or the corona crisis, there is now a financial package for security in Europe.” Details of such a package won’t be released (officially, that is) until after the German elections on Sunday though. Either way, it’s yet another existential moment where Europe risks being marginalized, economically, militarily and politically by the other great powers that be, if it does not rise to the occasion. Member States in the past have shown they are ready and willing to overcome their differences whenever circumstances were at their direst: from the GFC over the migration crisis to the pandemic and the war-related energy crunch. We can only assume they will again. That should lead to a significant boost in defense expenditures, on a national level first before moving to the European level. The Next Generation EU framework that was created in the Covid aftermath serves as the perfect blueprint. The French minister for European Affairs said such joint European bonds should be discussed in the coming days. Speculation for such increased spending is flaring up today, especially for countries that have the most room to do so, i.e. Germany. Yields rise 1.7-6.4 bps in a bear steepening move. Bunds vs swap also underperform compared to other European nations. UK yields rise 0.5-3.4 bps on a net daily basis. Prime Minister Starmer, who joined the summit, said his country needed to lift defense spending as part of the new reality they are in now. US financial markets are closed for President’s Day. The Japanese yen outperforms on currency markets after Q4 GDP numbers exceeded expectations. USD/JPY eases to 151.51. Other dollar pairs trade muted in absence of the US. EUR/USD hovers near Friday’s closing levels just south of 1.05. DXY treads water at 106.85. Sterling strengthens to EUR/GBP 0.831 ahead of tomorrow’s labour market report, Wednesday’s CPI figures and Friday’s retail sales and PMIs.

News & Views

OPEC+ is considering delaying planned monthly oil supply increases (+120k barrels/day) set to begin in April. This would be the fourth postponement of production increases since 2022. The coalition, led by Saudi Arabia and Russia, aims to restore 2.2mn b/d by late 2026. Trump has urged OPEC to cut oil prices, but at currently $74.5/b (broadly unchanged on a daily basis), prices are still too low for many OPEC members to cover government spending. OPEC's decisions will prioritize long-term impacts with the group also concerned about the volatility caused by US trade tariffs. Even if OPEC+ maintains current output levels, global oil supplies are expected to exceed demand by 450,000 b/d this year according to the International Energy Agency.

The International Monetary Fund (IMF) has recommended that South Africa take bold steps to reduce its debt burden and boost economic growth. The IMF suggests a fiscal adjustment of 1% of GDP per year for three years, which would help lower public debt to more prudent levels of 60% to 70% of GDP within five to ten years from a projected 74.7% at the end of FY 2025. South Africa's debt-to-GDP ratio has risen significantly, and the country faces pressure to balance fiscal discipline with demands for increased spending. Key proposed measures include wage discipline, reforms at state-owned enterprises (SOEs), and tighter control of government procurement. The South African rand trades a tad softer today, bouncing off first technical support at USD/ZAR 18.30.

Daily Pivots: (S1) 1.0454; (P) 1.0484; (R1) 1.0521; More...

EUR/USD is staying in consolidation from 1.0176 and intraday bias remains neutral. Stronger rebound might be seen but outlook will remain bearish as long as 38.2% retracement of 1.1213 to 1.0176 at 1.0572 holds. On the downside, break of 1.0176 will resume whole fall from 1.1213. However, decisive break of 1.0572 will raise the chance of reversal, and target 61.8% retracement at 1.0817.

In the bigger picture, immediate focus is on 61.8 retracement of 0.9534 (2022 low) to 1.1274 (2024 high) at 1.0199. Sustained break there will solidify the case of medium term bearish trend reversal, and pave the way back to 0.9534. However, reversal from 1.0199 will argue that price actions from 1.1274 are merely a corrective pattern, and has already completed.

Daily Pivots: (S1) 1.2539; (P) 1.2585; (R1) 1.2630; More...

Intraday bias in GBP/USD remains neutral with focus on 38.2% retracement of 1.3433 to 1.2099 at 1.2609. Rejection by this level will keep near term outlook bearish. Break of 1.2331 support will suggest that the rebound from 1.2099 has completed as a correction, and bring retest of 1.2099 low. However, firm break of 1.2609 will raise the chance of near term reversal, and target 61.8% retracement at 1.2923.

In the bigger picture, rise from 1.0351 (2022 low) should have already completed at 1.3433 (2024 high), and the trend has reversed. Further fall is now expected as long as 1.2810 resistance holds. Deeper decline should be seen to 61.8% retracement of 1.0351 to 1.3433 at 1.1528, even as a corrective move. However, firm break of 1.2810 will dampen this bearish view and bring retest of 1.3433 high instead.

Daily Pivots: (S1) 0.8954; (P) 0.9017; (R1) 0.9061; More…

No change in USD/CHF's outlook as consolidation from 0.9200 is still extending. Intraday bias stays neutral at this point. While deeper pull back might be seen, outlook will stay mildly bullish as long as 38.2% retracement of 0.8374 to 0.9200 at 0.8884 holds. On the upside, firm break of 0.9223 key resistance will carry larger bullish implication. However, sustained break of 0.8884 will indicate bearish reversal, and target 61.8% retracement at 0.8690 instead.

In the bigger picture, decisive break of 0.9223 resistance will argue that whole down trend from 1.0342 (2017 high) has completed with three waves down to 0.8332 (2023 low). Outlook will be turned bullish for 1.0146 resistance next. Nevertheless, rejection by 0.9223 will retain medium term bearishness for another decline through 0.8332 at a later stage.

The Japanese yen continues to roll against the US dollar and has posted gains for a third straight trading day, gaining 1.9% during that time. In the European session, USD/JPY is trading at 151.43, down 0.53% on the day.

Japan’s Q4 GDP beats estimate

Japan’s GDP in the fourth quarter rose 0.7% q/q, blowing past the market estimate of 0.3% and above the upwardly revised 0.4% gain in the third quarter. This marked the third straight quarter of quarterly growth, pointing to stronger economic activity. On an annualized basis, GDP jumped 2.8%, well above the market estimate of 1% and beating the revised third-quarter GDP gain of 1.7%.

The strong GDP report was driven by an increase in exports. Private consumption gained just 0.1%, compared to a 0.7% gain in the third quarter and higher than the market estimate of -0.3%. The weakness in domestic demand, which was also reflected in a decline in imports, is weighing on economic growth.

Inflation continues to move higher, and December CPI hit 3% y/y, its highest annual level in 16 months. There are growing expectations that the Bank of Japan will again raise rates in the coming months, although the central bank isn’t signaling any particular dates. The BoJ raised rates by a quarter-point in January and the next meeting is on March 19.
The US wrapped up the week with a soft retail sales report. January retail sales slid 0.9%, much worse than the market estimate of -0.1% and following a solid gain of 0.7% in December. This was the sharpest decline since March 2023, as severe weather and the Los Angeles fires dampened consumer spending. Annually, retail sales eased to 4.2%, down from an upwardly revised 4.4% in December and above the forecast of 3.7%.

USD/JPY Technical

• USD/JPY has pushed below support at 151.86 and is putting pressure on support at 151.36
• 152.49 and 153.96 are the next resistance lines

Daily Pivots: (S1) 151.83; (P) 152.49; (R1) 152.96; More...

Intraday bias in USD/JPY remains neutral with focus on 38.2% retracement of 139.57 to 158.86 at 151.4. Strong rebound from there will maintain near term bullishness. On the upside, break of 154.79 will revive the case that correction from 158.86 has completed at 150.29. Further rise should be seen to retest 158.86 high. However, break of 150.92 and sustained trading below 151.49 will raise the chance of trend reversal, and target 148.64 support instead.

In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low). In case of another fall, strong support should be seen from 38.2% retracement of 102.58 to 161.94 at 139.26 to bring rebound. However, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

Yen remains the standout performer, even though momentum had moderated slightly. Discussions surrounding BoJ’s next move continue to dominate, particularly in a low-activity session with both US and Canadian markets closed for holidays.

After stronger than expected Japanese Q4 GDP report, market expectations for a July rate hike to 0.75% have strengthened to around 80%. However, the timeline could shift sooner if results from the upcoming Shunto wage negotiations indicate stronger-than-expected wage growth.

Looking further ahead, some analysts see BoJ’s policy rate reaching 1% by year-end, which would mark the lower bound of its own estimated neutral rate range of 1-2.5%. This shift in policy expectations has kept Yen well-supported against its peers for now.

In the upcoming Asian session, focus is turning toward RBA, which is widely anticipated to begin its easing cycle with a 25bps rate cut to 4.10%. A Reuters poll of economists showed that 31 out of 41 analysts expect another quarter-point cut in Q2, bringing rates down to 3.85%.

Among major Australian banks, ANZ, CBA, NAB, and Westpac all foresee a 25bps cut tomorrow, but their forecasts for cumulative cuts in 2025 vary between 50 and 100 basis points. Market participants will closely watch the RBA’s guidance and updated economic forecasts for further clues on the policy path ahead.

Technically, AUD/USD's rebound from 0.6087 is seen as a corrective move only, probably the first leg of a consolidation pattern to the decline from 0.6941. Strong resistance should be seen from 38.2% retracement of 0.6941 to 0.6087 at 0.6413 to limit upside. However, sustained break there could bring stronger rise to 61.8% retracement at 0.6615, even still as a correction.

In Europe, at the time of writing, FTSE is up 0.24%. DAX is up 0.93%. CAC is up 0.11%. UK 10-year yield is up 0.0414 at 4.551. Germany 10-year yield is up 0.056 at 2.490. Earlier in Asia, Nikkei rose 0.06%. Hong Kong HSI fell -0.02%. China Shanghai SSE rose 0.27%. Singapore Strait Times rose 0.71%. Japan 10-year JGB yield jumped 0.0362 to 1.393.

BoE’s Bailey sees ongoing gradual disinflation, warns of two-sided risks

BoE Governor Andrew Bailey reaffirmed today that the UK remains on "gradual disinflation" path, noting that the lingering effects of past economic shocks are slowly fading.

However, he emphasized that risks are “two-sided,” as highlighted in the BoE’s latest minutes, where differences within the committee surfaced.

On Q4 GDP data, which came in stronger than expected, Bailey downplayed its impact, stating that the economy has been “quite static” since late spring 2024.

Regarding the US government’s evolving stance on tariffs, Bailey expressed concerns about economic fragmentation, warning that such shifts could harm global growth.

However, he acknowledged that the inflationary impact from tariffs remains “ambiguous,” as it depends on factors such as “redirection of trade” and retaliatory measures.

He reiterated that risks exist on both sides, justifying the BoE’s use of “careful” alongside “gradual” in its policy guidance.

Eurozone goods exports rises 3.1% yoy in Dec, imports rises 3.8% yoy

Eurozone goods exports rose 3.1% yoy to EUR 226.5B in December. Goods imports rose 3.8% yoy to EUR 211.0B. Trade balance recorded EUR 15.5B surplus. Intra-Eurozone trade rose 1.7% yoy to EUR 191.5B.

In seasonally adjusted term, goods exports fell -0.2% mom to EUR 240.8B. Goods imports fell -0.8% mom to EUR 226.2B. Trade balance reported EUR 14.6B surplus, smaller than expectation of EUR 15.0B. Intra-Eurozone trade rose 0.6% mom to EUR 213.1B.

Japan’s Q4 GDP beats forecasts with 0.7% qoq growth

Japan’s economy expanded by 0.7% qoq in Q4 2024, surpassing market expectations of 0.3% qoq and improving from the previous quarter’s 0.4% qoq rise. On an annualized basis, GDP grew 2.8%, significantly above 1.0% forecast and accelerating from Q3’s 1.7% pace.

Private consumption, which accounts for over half of Japan’s economic output, edged up by 0.1% qoq, defying expectations of a -0.3% qoq contraction. However, it slowed sharply from the 0.7% qoq increase recorded in Q3, reflecting a cautious spending environment.

Capital spending improved by 0.5% qoq, reversing the -0.1% qoq decline in Q3, but fell short of the anticipated 1.0% qoq rise.

Price pressures continued climbing, with the GDP deflator inching up from 2.4% yoy to 2.8% yoy.

Despite the strong Q4 performance, full-year 2024 GDP growth slowed sharply to 0.1%, a steep decline from the 1.5% expansion in 2023.

NZ BNZ services rises to 50.4, stabilization rather than elevation

New Zealand BusinessNZ Performance of Services Index climbed from 48.1 to 50.4 in January, marking a return to expansion after four consecutive months of contraction. While this signals some improvement, the index remains below its long-term average of 53.1.

A closer look at the components reveals a mixed picture. Activity/sales saw a notable rebound, rising from 46.5 to 54.0, while new orders/business ticked up slightly from 49.4 to 50.0. Stocks/inventories also edged into expansion territory at 50.1, up from 48.9. However, employment continued to struggle, slipping from 47.4 to 47.1. Supplier deliveries showed minimal improvement, moving from 47.7 to 47.8.

Despite the headline figure turning positive, sentiment remains weak. The proportion of negative comments rose to 61.9% in January, up from 57.5% in December and 53.6% in November. Respondents cited economic uncertainty and broader downturn concerns as key issues.

BNZ’s Senior Economist Doug Steel noted that the PSI reflects “stabilization rather than elevation,” highlighting that while the upward move is a positive sign, the sector is far from robust growth.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 151.83; (P) 152.49; (R1) 152.96; More...

Intraday bias in USD/JPY remains neutral with focus on 38.2% retracement of 139.57 to 158.86 at 151.4. Strong rebound from there will maintain near term bullishness. On the upside, break of 154.79 will revive the case that correction from 158.86 has completed at 150.29. Further rise should be seen to retest 158.86 high. However, break of 150.92 and sustained trading below 151.49 will raise the chance of trend reversal, and target 148.64 support instead.

In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low). In case of another fall, strong support should be seen from 38.2% retracement of 102.58 to 161.94 at 139.26 to bring rebound. However, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.