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In the US, Trump's nomination of Kevin Warsh as the new Fed chair was received positively by markets, as the USD regained ground and precious metals turned lower this week. While Warsh has occasionally sided with Trump in calling for lower rates in the US, we still think his nomination should reduce concerns regarding the Fed's independence. This week also brought a string of labour market data that all surprised on the downside. The ADP data showed US employed increased by 22k private sector jobs in January (consensus: +48 k). The Challenger report showed more job cuts than expected in January and the JOLTs job opening came in at 6.5m in December (consensus 7.2m). Hence, the US ratio of job openings to unemployed fell to just 0.87 in December. Such cooling is usually a good predictor for weakening wage growth and may be a concern for the private consumption outlook and, all else equal, supports the case for earlier cuts from the Fed. On the other hand, the ISM manufacturing surprised significantly positively rising to 57.1 in January from 47.4 while the services index was as expected at 53.8 (cons: 53.5, prior 53.8). The jobs market report scheduled for Wednesday will thus be very important to follow.

In the euro area, inflation declined as expected to 1.7% y/y in January from 2.0% y/y while core inflation was slightly weaker than expected at 2.2% y/y (cons: 2.3% y/y). The decline in headline inflation was well expected due to a significant base effect on energy inflation, which was the main reason for the decline. Yet, a weaker-than-expected services inflation print of 0.15% m/m s.a. means that the January report provided a dovish signal for the ECB. Despite inflation falling below target the ECB decided to leave its key policy rates unchanged with the deposit facility rate at 2.00%, as widely expected by markets and consensus. Lagarde accentuated the positive factors of the economy such as low unemployment while downplaying the role of the inflation undershooting and strengthened euro. For further information, see ECB Review - Accentuate the positive, 5 February.

In the UK, the Bank of England kept the interest rate unchanged at 3.75% in an unexpectedly narrow vote split of 5-4, which was a dovish surprise. In their report, they concluded that the economic outlook for the UK involves less growth and inflation than previously anticipated. This also entails that we continue to aim for the next rate cut in April but also pencil in another cut in November. For details, see Bank of England Review, 5 February.

In China, the January PMIs were a mixed bag. The official NBS PMI manufacturing dropped 49.3 (consensus 50.1) from 50.1 whereas the private RatingDog PMI manufacturing increased to 50.3 (consensus 50.0) from 50.1. The details show the difference was due to export orders. However, the PMIs do not change the picture of a Chinese economy that continues to muddle through in a two-speed fashion with strong exports and tech developments amid weak domestic demand.

Next week focus turns to the US job market report, Q4 employment cost index, retail sales, and January CPI. We expect 60K new jobs and CPI at 2.4% y/y in January. In Asia, the Japanese election this Sunday is important for financial markets while China publishes home price data and CPI during the week. In Europe, we receive the first euro area employment data for 2025Q4 and UK GDP.

Full report in PDF. 

• Precious metals rebounded, but remain expensive relative to early 2026 levels
• Gold’s rally was not driven by falling rates or rising inflation expectations
• Geopolitical risk and policy uncertainty boosted safe haven demand
• Downside appears limited, but upside momentum is likely to slow

Partial rebound, but valuations remain elevated

The precious metals market has seen a partial rebound after a sharp correction, but this has not fundamentally changed the picture of still elevated valuations. Gold remains more than 12 percent above its levels at the start of 2026, while silver is around 4 percent higher. In silver, the recent selloff pushed prices to new early February lows before only a modest rebound followed. The scale of the earlier rally keeps the question of how durable the correction really is firmly on the table.

Spot price chart for gold and silver, source: Bloomberg

A rally detached from classic macro drivers

What makes the current situation unusual is that the strong rise in gold prices was not supported by traditional macroeconomic factors. Real interest rates have not fallen materially, and long term inflation expectations in the United States remain stable, slightly below 2.5 percent. Markets are pricing in only two further rate cuts to around 3 percent by year end. At the same time, fundamental valuation models suggest that even after the recent pullback, gold is still priced roughly 2000 dollars per ounce above levels justified by macro fundamentals over the past three years, increasing vulnerability to further corrections.

Safe haven demand driven by global uncertainty

The main driver behind this overvaluation has been gold’s growing role as a safe haven. The war between Russia and Ukraine, tensions in the Middle East, and a more confrontational stance by China towards Taiwan have significantly raised global uncertainty. The freezing of Russian foreign exchange reserves has also heightened concerns among central banks about the safety of reserve assets. These factors were reinforced by the unpredictability of US economic policy under Donald Trump, including pressure on the Federal Reserve, aggressive trade policies, and rising fiscal risks, which undermined confidence in traditional safe assets.

Limited downside, but slower gains ahead

Recent price action shows that even a partial easing of uncertainty can halt rallies and trigger profit taking. Still, a sharp collapse in gold prices appears unlikely, as recent months have shown that declines are quickly used as buying opportunities, including by central banks. In the medium term, the most likely scenario is price stabilisation in gold and silver, followed by a moderate recovery, with higher volatility and clearly slower gains than at the start of the year.

Canada's economy lost 25k jobs in January (-0.1% month/month), weaker than consensus expectations for a 5k increase. The details were healthier, with full-time positions rising 45k, while part time tumbled 70k. Since January 2025, full time positions are up 149k, while part-time roles have fallen by 14k.

The unemployment rate tumbled back to 6.5% from 6.8% in December. The unemployment rate was dragged lower by 119k people leaving the labour force. This brought down the labour force participation rate by 0.4 percentage points to 65.0% – its lowest level since May 2021. Importantly, StatCan noted that reasons for not participating in the labour market were little changed from last year, with the exception of youth aged 15 to 24 being more likely to be attending school.

Job gains were concentrated in information, culture and recreation (+17k), business, building and other support services (+14k) agriculture (+11k) and utilities (+4.2k). The biggest losses were in manufacturing (-28k), educational services (-24k) and public administration (-10k).

Wage growth slowed again in January, with average hourly wages up 3.3% versus a year ago (3.4% in December).

Key Implications

Was this good news or bad news? The unemployment rate unexpectedly fell back to 6.5% - its lowest level since September 2024. However, the economy still shed 25K jobs. It was thanks to an even larger decline in the labour force that the overall job market got tighter. This is a trend to keep an eye on. Canada's population is expected to shrink in 2026, meaning a smaller pool of available workers. Under these conditions the unemployment rate can continue to fall even if Canada is losing jobs.

One report is unlikely to move the needle for the Bank of Canada. The unemployment rate suggests the labour market is better than expected – but not necessarily tight. An unemployment rate of 6.5% is still above a long-term level associated with stable inflation. Coupled with the uncertainty about the supply side of the economy, and the prospects for trade, the BoC is likely content to watch things play out.

Markets

“Zero. Zip. Nada.” An overlooked speech by Fed governor Waller gets more attention. Last week he explained why he dissented against the most recent Fed decision, arguing in favor of a 25 bps rate cut. His main argument is continued weakness on the labour market: “Despite ticking down in its most recent reading, the unemployment rate has risen since the middle of last year. Payroll gains in 2025 were very weak. Compared to the prior ten-year average of about 1.9 million jobs created per year, payrolls increased just under 600,000 for 2025. And, last year's data will be revised downward soon to likely show that there was virtually no growth in payroll employment in 2025. Zero. Zip. Nada.” The argument gained traction yesterday following disappointing (second tier) US labour market data. Weekly claims ticked up more than expected (231k from 209k), January Challenger job cuts showed the worst January layoffs since January 2009 (108k job cuts, up from 36k in December) and downwardly revised JOLTS job openings declined further in January to their lowest level since September 2020 (6542k). In hindsight, the weak US labour data probably weren’t given the proper weight in explaining yesterday’s risk-off correction. The numbers came amidst the BoE & ECB policy decisions, the AI spending & valuation debate, the potentially disrupting impact from agentic AI and the highly volatile situation on other hyped assets like several commodities or crypto. It’s probably wise to keep yesterday’s reaction (function) in mind when delayed January payrolls (including revisions) will be published next week on Wednesday. Compared to the end of last week, a next Fed rate cut is now fully discounted by the June instead of the July policy meeting. Risks of a further repositioning are rising, especially when the market smells something like a job recession. On Friday, January US inflation number will highlight progress on the other part of the Fed’s dual mandate. Overall, risk markets try to get their nerves back today after a panicky week with dip-buyers showing up. The EuroStoxx50 rebounds 0.9% with US equity markets opening about 1.0% stronger. Crypto and (precious) metals also trade off the sell-off lows amid an empty eco calendar. Daily changes on US and European yield curves are limited to 1 bp with EUR/USD holding around 1.18 and EUR/GBP around 0.87. JPY holds near this week’s weakest levels going into parliamentary elections. A strong LDP-victory might cause jitters on Monday morning and test the Ministry of Finance’s resolve to enter the FX market if needed. All eyes will in such scenario also be on the NY Fed which was rate checking to support the Japanese MoF mid-January when USD/JPY came dangerously close to the 160-handle.

News & Views

The ECB’s quarterly survey of professional forecasters (SPF) showed few changes in Q1 2026 compared to Q4 2025. Respondents see HICP inflation at 1.8% this year, 2% in 2027. The first estimate for 2028 is set at 2.1%. 2026 growth is seen slightly stronger at 1.2% and is expected to improve to 1.4% and 1.3% in 2027 & 2028. Forecasters expect unemployment to gradually ease over the 2026/28 horizon (6.3%, 6.2%, 6.1% respectively). A summary of recent contacts between the ECB staff and non-financial companies pointed at gradually increasing business momentum and confidence, with growth still primarily driven by services. Reports from industry activity were mixed. Growth in consumer spending on services continued to outpace growth in spending on goods, but retailers reported disappointing spending in late 2025. The investment outlook improved. Manufacturers point to order books for projects related to electrification, data centers, energy and defense. Digital services also see strong demand growth. Global trade was proving resilient to US tariffs, but EMU net trade suffered from trade diversion. The employment outlook remained lackluster amid a strong focus on cost-cutting and the AI threat. Growth in selling prices had remained moderate as also wage growth is expected to slow (2.7%this year from 3.2% last year).

Canadian employment declined by 24 800 in January while a small rise was expected. However, the decline was only due to part-time work (-69.7k). Full-time employment rose 44.9k. In a broader perspective, overall employment still was up 134k compared to the same month last year. Despite lower monthly employment, also the unemployment rate declined from 6.8% to 6.5% (lowest since September 2024) The Labour force participation rate declined 0.4% to 65% as fewer people were looking for work. Hourly wage growth of permanent workers slowed to 3.3% from 3.7%. Today’s data won’t change Bank of Canada’s neutral policy bias.

Daily Pivots: (S1) 1.1761; (P) 1.1792; (R1) 1.1808; More….

Intraday bias in EUR/USD is turned neutral again with current recovery. On the downside, sustained trading below 55 D EMA (now at 1.1731) will raise the chance of reversal on rejection by 1.2 psychological level, and target 1.1576 support. On the upside, above 1.1870 minor resistance will bring stronger rebound to retest 1.2081. Decisive break above 1.2 will carry larger bullish implications.

In the bigger picture, as long as 55 W EMA (now at 1.1458) holds, up trend from 0.9534 (2022 low) is still in favor to continue. Decisive break of 1.2 key psychological level will add to the case of long term bullish trend reversal. Next medium term target will be 138.2% projection of 0.9534 to 1.1274 from 1.0176 at 1.2581. However, sustained trading below 55 W EMA will argue that rise from 0.9534 has completed as a three wave corrective bounce, and keep long term outlook bearish.

Daily Pivots: (S1) 0.7753; (P) 0.7771; (R1) 0.7799; More….

Intraday bias in USD/CHF remains neutral for the moment. On the upside, above 0.7816 will resume the rebound from 0.7603 short term bottom to 55 D EMA (now at 0.7896). But strong resistance should be seen there to limit upside. On the downside, below 0.7713 minor support will bring retest of 0.7603. Firm break there will resume larger down trend to 0.7382 projection level next.

In the bigger picture, larger down trend from 1.0342 (2017 high) is still in progress and resuming. Next target is 100% projection of 1.0146 (2022 high) to 0.8332 from 0.9200 at 0.7382. In any case, outlook will stay bearish as long as 55 W EMA (now at 0.8166) holds.

Daily Pivots: (S1) 156.60; (P) 156.97; (R1) 157.41; More...

Intraday bias in USD/JPY is turned neutral first. Rise from 142.07 is seen as the second leg of the corrective pattern from 159.44. Above 157.33 will target 159.44 high. On the downside, below 155.51 minor support will turn bias to the downside for deeper retreat. But overall outlook will stay bullish as long as 38.2% retracement of 139.87 to 159.44 at 151.96, in case of another dip.

In the bigger picture, outlook is unchanged that corrective pattern from 161.94 (2024 high) should have completed with three waves at 139.87. Larger up trend from 102.58 (2021 low) could be ready to resume through 161.94. This will remain the favored case as long as 55 W EMA (now at 151.59) holds. However, sustained break of 55 W EMA will argue that the pattern from 161.94 is extending with another falling leg.

Daily Pivots: (S1) 1.3472; (P) 1.3575; (R1) 1.3631; More...

GBP/USD recovered after dipping to 1.3507 and intraday bias it turned neutral again. On the downside, below 1.3507 will resume the fall from 1.3867 to 55 D EMA (now at 1.3483). Sustained break there will raise the chance of larger scale correction, and target 1.3342 support for confirmation. On the upside, above 1.3732 minor resistance will bring retest of 1.3867. Firm break there will resume larger up trend towards 1.4284 key resistance.

In the bigger picture, rise from 1.0351 (2022 low) is resuming by breaking through 1.3787 high. Further rally should be seen to 1.4284 key resistance (2021 high). Decisive break there will add to the case of long term bullish trend reversal. For now, outlook will stay bullish as long as 1.3008 support holds, even in case of deep pullback.

Market sentiment appears to be stabilizing after this week’s sharp tech-led selloff. US equity futures are edging higher and cryptocurrencies are recovering modestly, suggesting the worst of the near-term liquidation pressure may have passed, at least for now. The calmer tone is feeding through into FX markets, where activity has slowed markedly. Most major pairs and crosses remain trapped within yesterday’s ranges, reflecting a lack of fresh catalysts and a market reluctant to re-extend positions after recent volatility.

Canadian Dollar is one of the mild outperformers, lifting slightly after mixed domestic labor data. While headline employment disappointed, the sharp fall in the unemployment rate and a marginal slowdown in wage growth were enough to ease concerns about deep deterioration. From a policy perspective, the data did little to shift expectations for the BoC, which is still widely seen as in a prolonged hold.

Sterling also found modest support following comments from BoE Chief Economist Huw Pill. Pill warned against complacency around the expected dip in inflation, stressing that much of the near-term downside reflects temporary fiscal measures rather than a clean break in underlying price pressures. Those remarks served as a reminder that policy easing is far from guaranteed. Although markets leans toward a rate cut in March after yesterday’s dovish-leaning hold, the deep split within the MPC means incoming data still matter significantly.

For the week so far, Aussie is now the strongest performer, followed by Dollar and then Kiwi. Yen sits at the bottom of the table, followed by Sterling and Swiss Franc, while Euro and Loonie are trading in the middle of the pack.

In Europe, at the time of writing, FTSE is up 0.11%. DAX is up 0.38%. CAC is down -0.06%. UK 10-year yield is down -0.04 at 4.523. Germany 10-year yield is down -0.012 at 2.836. Earlier in Asia, Nikkei rose 0.81%. Hong Kong HSI fell -1.21%. China Shanghai SSE fell -0.25%. Singapore Strait Times fell -0.83%. Japan 10-year JGB yield rose 0.006 to 2.234.

Canada employment falls -25k, participation drop drives unemployment rate down to 6.5%

Employment in Canada fell by -25k in January, a sharp miss versus expectations for a modest 7k gain and a clear sign of near-term labor market softness. The decline was driven by a steep drop in part-time jobs (-70k), which more than offset gains in full-time employment (45k).

Meanwhile, Headline unemployment fell sharply from 6.8% to 6.5%, beating expectations of 6.8%, and marking its lowest level since September 2024. However, the improvement was driven by a sizeable drop in labor force participation rather than stronger hiring, with the participation rate falling 0.4ppt to 65.0%. Employment rate slipped from 60.9%. to 60.8%, its first decline since August.

Wage pressures continued to ease at the margin. Average hourly wages rose 3.3% yoy, down slightly from December's 3.4% yoy.

BoE’s Pill urges to look past April inflation dip

BoE Chief Economist Huw Pill cautioned against drawing "too much comfort" from the near-term dip in inflation expected later this year. Speaking at an event today, Pill said the downside in short-term inflation dynamics was partly created by "fiscal measures" announced last November and risks obscuring the more persistent forces shaping longer-term price pressures.

Drawing a parallel with 2025, Pill said the Bank of England had previously looked through a temporary inflation spike caused by regulatory changes, and should apply the same logic to the projected drop to 2% in April when lower regulated energy prices take effect.

He stressed that monetary policy must remain focused on addressing persistence in inflationary pressures beyond these temporary effects. Pill was among the narrow 5–4 majority on the MPC who voted to keep Bank Rate unchanged at 3.75% this week.

BoE survey sees gradual rate cuts, higher gilt yields ahead

According to the BoE’s latest Market Participants Survey, investors expect a steady easing cycle over the next year. Respondents see Bank Rate gradually reduced from the current 3.75% to around 3.0% by the March 2027 meeting, pointing to confidence that disinflation will allow policy to ease without urgency.

Despite expectations for lower rates, views on quantitative tightening were unchanged. The median forecast for gilt sales over the 12 months from October remained at GBP 50 billion.

At the same time, participants revised up their outlook for long-term yields. The median expectation for 10-year gilt yields at end-2026 rose to 4.25%, from 4.0% previously, indicating that while policy rates are expected to fall, investors see structural or fiscal factors keeping longer-dated yields elevated.

ECB's Kazaks: Current Euro l baked in, but further sharp appreciation could trigger response

Latvian ECB Governing Council member Martins Kazaks said a “sizeable and pacey” strengthening of Euro could materially lower the inflation outlook, "potentially triggering a policy response". A stronger currency, he argued in a blog post, would weigh on competitiveness and economic activity, feeding through to weaker price pressures.

Kazaks noted that EUR/USD has traded in a relatively narrow 1.15–1.20 range in recent months. The last meaningful appreciation occurred in the second quarter of 2025, a move he described as appearing largely "permanent".

Because of policy lags, the full disinflationary impact of that earlier appreciation has yet to be felt and is expected to emerge later this spring. Importantly, Kazaks stressed that these effects are already “baked into” the ECB’s baseline forecast, limiting the need for near-term policy adjustment.

With that backdrop, Kazaks said monetary policy is “in a good place” and not the main lever at present. Instead, he argued that urgent progress on structural reforms is needed to strengthen Europe’s economic fundamentals, resilience, and global standing in an increasingly volatile geopolitical environment.

BoJ’s Masu backs further hikes, flags weak Yen risks but urges caution

BoJ board member Kazuyuki Masu said further interest rate hikes will be needed to complete Japan’s monetary policy normalization. He noted that underlying inflation remains below 2% but is “drawing very close” to that level as firms and households gradually shed entrenched deflationary behavior.

He cautioned, however, that the Yen’s recent weakness could amplify price pressures by lifting inflation expectations, with potential spillovers into underlying inflation. Also, He highlighted processed food prices as a key area to watch, noting that surging rice prices may have made consumers more receptive to broader food price increases.

At the same time, Masu stressed the need for caution. "it is critical to ensure excessive rate hikes do not disrupt the virtuous cycle of a moderate rise in prices and wages that has finally begun to gain momentum in Japan," he said.

RBA's Bullock defends rate hike, cites excess demand and capacity strain

RBA Governor Michele Bullock told the House of Representatives economics committee today that the decision to raise the cash rate by 25bps to 3.85% was driven by a clear resurgence in inflation pressures during the second half of 2025.

Bullock said the Board concluded that demand in the economy had proven stronger than expected, running ahead of the supply side’s capacity to respond. As a result, inflation outcomes indicated a larger degree of "excess demand" than previously assumed.

She emphasized that this imbalance means demand growth must be dampened unless productivity and supply expand at a faster pace. With the economy now judged to be "more capacity constrained", leaving policy unchanged would risk inflation remaining elevated for longer. On that basis, the RBA determined that tighter monetary policy was required.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.3472; (P) 1.3575; (R1) 1.3631; More...

GBP/USD recovered after dipping to 1.3507 and intraday bias it turned neutral again. On the downside, below 1.3507 will resume the fall from 1.3867 to 55 D EMA (now at 1.3483). Sustained break there will raise the chance of larger scale correction, and target 1.3342 support for confirmation. On the upside, above 1.3732 minor resistance will bring retest of 1.3867. Firm break there will resume larger up trend towards 1.4284 key resistance.

In the bigger picture, rise from 1.0351 (2022 low) is resuming by breaking through 1.3787 high. Further rally should be seen to 1.4284 key resistance (2021 high). Decisive break there will add to the case of long term bullish trend reversal. For now, outlook will stay bullish as long as 1.3008 support holds, even in case of deep pullback.

BoE Chief Economist Huw Pill cautioned against drawing "too much comfort" from the near-term dip in inflation expected later this year. Speaking at an event today, Pill said the downside in short-term inflation dynamics was partly created by "fiscal measures" announced last November and risks obscuring the more persistent forces shaping longer-term price pressures.

Drawing a parallel with 2025, Pill said the Bank of England had previously looked through a temporary inflation spike caused by regulatory changes, and should apply the same logic to the projected drop to 2% in April when lower regulated energy prices take effect.

He stressed that monetary policy must remain focused on addressing persistence in inflationary pressures beyond these temporary effects. Pill was among the narrow 5–4 majority on the MPC who voted to keep Bank Rate unchanged at 3.75% this week.