• The Pound Sterling edges lower to near 1.2420 against the USD ahead of the US NFP data for January.
• Investors expect the US NFP to drive market expectations for the Fed’s monetary policy outlook.
• BoE’s Catherine Mann surprisingly supported a bigger interest rate reduction of 50 bps.

The Pound Sterling (GBP) ticks lower to near 1.2420 against the US Dollar (USD) in Friday’s European session ahead of the United States (US) Nonfarm Payrolls (NFP) data for January, which will be published at 13:30 GMT. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, ticks higher to near 107.80

Investors will pay close attention to the US official employment data, which is expected to influence market speculation about how long the Federal Reserve (Fed) will keep interest rates steady in the range of 4.25%-4.50%.

On Thursday, Dallas Fed Bank President Lorie Logan said she would support holding interest rates for “quite some time” until the “labor market doesn’t falter” even if inflationary pressures decelerate closer to the central bank’s target of 2%.

Last week, Fed Chair Jerome Powell also said that monetary policy adjustments won’t be appropriate until the central bank sees “real progress in inflation or at least some weakness in labor market”.

The US NFP report is expected to show that the economy added 170K workers in January, significantly lower than 256K in December. The Unemployment Rate is seen steady at 4.1%. Investors will also focus on the Average Hourly Earnings data, a key measure of wage growth that drives consumer spending. The wage growth measure is estimated to have decelerated to 3.8% year-on-year from 3.9% in December, with monthly figures growing steadily by 0.3%.

Meanwhile, the uncertainty over US President Donald Trump’s tariff agenda will also keep investors on their toes. Market participants expect President Trump to target Europe next for imposing tariffs.

Daily digest market movers: Pound Sterling trades with caution as BoE halves GDP forecasts

• The Pound Sterling trades cautiously against its major peers on Friday after a sharp sell-off on Thursday. Investors dumped the British currency the prior day after the Bank of England’s (BoE) policy meeting, in which the central bank reduced interest rates by 25 basis points (bps) to 4.5% and revised Gross Domestic Product (GDP) forecast for the year to 0.75%, lower from 1.5% projected in November.
• Investors had anticipated a 25 bps interest rate reduction, with an 8-1 vote split, but all officials supported easing the monetary policy further. However, the notable reason behind the sharp sell-off in the Pound Sterling was Monetary Policy Committee (MPC) member Catherine Mann, an outspoken hawk, joining official Swati Dhingra and favoring a bigger rate cut of 50 bps. This scenario indicated how much policymakers are concerned over the economic outlook.
• BoE Governor Andrew Bailey guided a cautious and gradual rate cut approach and warned that, due to higher energy prices, inflation could temporarily rise to near 3.7% in the third quarter of the year before falling back to the 2% path.
• BoE’s interest rate cut decision is expected to bring a big relief to the United Kingdom (UK) Chancellor of the Exchequer Rache Reeves, as it will stimulate economic growth. Still, downwardly revised GDP growth appears to be a wake-up call for her. Last week, Reeves was very optimistic about her economic plans, including a new runway at Heathrow Airport.

Technical Analysis: Pound Sterling trades inside Thursday’s trading range

• NZD/USD remains steady as traders adopt caution ahead of the US Nonfarm Payrolls release on Friday.
• The US Dollar extends its recovery amid rebounding US Treasury yields.
• The risk-sensitive NZD struggled as heightened risk aversion grew amid global trade and economic uncertainties.

NZD/USD remains steady after registering losses in the previous session, trading around 0.5680 during the European hours on Friday. The pair remains silent as sentiment turns cautious ahead of a key US jobs report. Traders brace for Friday’s US Nonfarm Payrolls (NFP) data, which is expected to shape the Federal Reserve’s (Fed) monetary policy direction.

The NZD/USD pair may face pressure as the US Dollar (USD) extends its recovery, supported by rebounding US Treasury yields. The US Dollar Index (DXY) has risen toward 107.70, while the 2-year and 10-year US Treasury yields stand at 4.22% and 4.44%, respectively, at the time of writing.

On the data front, US Initial Jobless Claims rose to 219K for the week ending January 31, as reported by the US Department of Labor (DoL) on Thursday. This print surpasses initial estimates of 213K and was higher than the previous week’s revised tally of 208K (from 207K).

The risk-sensitive New Zealand Dollar (NZD) struggled amid heightened risk aversion due to global trade and economic uncertainties. However, trade negotiations between the United States (US) and China could temper this sentiment. US President Donald Trump and Chinese President Xi Jinping are set to discuss potential tariff rollbacks.

The Kiwi Dollar could face headwinds as the Reserve Bank of New Zealand (RBNZ) is widely expected to cut interest rates in February. Markets are currently pricing in a nearly 92% chance of a 50 basis-point cut to 3.75% on February 19, marking the third consecutive jumbo rate reduction.

• USD/CAD struggles for a firm near-term direction and oscillates in a range on Friday. 
• Fed rate cut bets keep the US bond yields and the USD depressed, capping the pair.
• Rebounding Oil prices underpin the Loonie and also act as headwind for the major.
• Traders further seem reluctant ahead of the crucial US/Canadian monthly jobs report.

The USD/CAD pair extends its sideways consolidative price move for the third straight day and remains confined in a narrow trading band around the 1.4300 mark through the first half of the European session on Friday. Spot prices, however, manage to hold above the 1.4260 area, or the year-to-date (YTD) low retested on Wednesday, as traders await monthly employment details from the US and Canada before placing fresh directional bets.

The popularly known US Nonfarm Payrolls (NFP) report will influence market expectations about the Federal Reserve’s (Fed) interest rate outlook and play a key role in driving the US Dollar (USD) demand. This is likely to overshadow Canadian jobs data and provide some meaningful impetus to the USD/CAD pair. In the meantime, bets that the Fed will stick to its easing bias keep the USD bulls on the defensive and act as a headwind for spot prices.

In fact, the markets are pricing in the possibility that the US central bank would lower borrowing costs twice by the end of this year. This keeps the US Treasury bond yields depressed near their lowest level since December and weighs on the USD. Apart from this, a goodish recovery in Crude Oil prices from over a one-month low underpins the commodity-linked Loonie and further contributes to capping the upside for the USD/CAD pair.

Meanwhile, investors now seem to have digested US President Donald Trump’s recent decision to delay 25% trade tariffs against Canada and Mexico. Apart from this, the Bank of Canada’s (BoC) dovish outlook might hold back traders from placing bullish bets around the Canadian Dollar (CAD). This warrants caution before positioning for an extension of the USD/CAD pair’s sharp pullback from over a two-decade high touched earlier this week.

EUR can trade in a broad range of 1.0250/1.0490

24-HOUR VIEW: “EUR rose to 1.0442 on Wednesday and then pulled back. Yesterday (Thursday), we highlighted that ‘the pullback in overbought conditions and slowing momentum suggest that instead of continuing to rise, EUR is likely to trade between 1.0360 and 1.0430’. EUR then traded in a lower and narrower range of 1.0350/1.0406, closing lower by 0.20% at 1.0381 (-0.20%). The current price movements are likely part of a range trading phase, probably between 1.0355 and 1.0415.”

1-3 WEEKS VIEW: “Our most recent narrative was from two days ago (05 Feb, spot at 1.0375), wherein “the outlook is unclear for now, and EUR could trade in a broad range of 1.0250/1.0490 for the time being.” We continue to hold the same view.”

• EUR/USD trades broadly sideways around 1.0400 as investors await the US NFP data for January.
• The Fed is expected to cut interest rates in the June policy meeting.
• ECB’s Cipollone expects the impact of tariffs on China to be deflationary for the Eurozone.

EUR/USD steadies in a tight range around 1.0400 in Friday’s European session as the US Dollar (USD) trades cautiously ahead of the United States (US) Nonfarm Payrolls (NFP) data for January, which will be published at 13:30 GMT. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, ticks lower to near 107.60.

Economists expect the US economy to have added 170K workers, fewer than 256K in December. The Unemployment Rate is estimated to have remained steady at 4.1%. The official employment data is expected to drive market speculation about how long the Federal Reserve (Fed) will hold interest rates at their current levels.

Signs of a strong labor market would boost expectations that the Fed will remain in the waiting mode regarding interest rates for longer. On the contrary, soft numbers would stimulate Fed dovish bets. According to the CME FedWatch tool, the Fed is expected to announce its next interest rate cut in the June policy meeting.

Last week, Fed Chair Jerome Powell said the central bank would make monetary policy adjustments only after seeing “real progress in inflation or at least some weakness in labor market” after the Fed left interest rates unchanged in the range of 4.25%-4.50%.

Investors will also pay close attention to the Average Hourly Earnings data, which is a key measure of wage growth that drives consumer spending. The wage growth measure is estimated to have decelerated to 3.8% year-on-year from 3.9% in December. In the month, Average Hourly Earnings are expected to have grown steadily by 0.3%.

Daily digest market movers: EUR/USD steadies while Euro’s outlook remains uncertain

• EUR/USD seems steady at around 1.0400, but the outlook for the Euro (EUR) remains uncertain amid concerns that the Eurozone is likely to feel the pain of higher tariffs by US President Donald Trump. Last weekend, President Trump warned that Europe will definitely face tariffs for not buying enough American goods, but didn’t provide much information.
• Analysts at Macquarie said President Trump held back specific tariff threats on the Eurozone because of “the lack of a stable government in Germany and France.” Still, they warned that a US tariff bomb would likely find “fertile ground in the EU” and escalate unresolved issues rapidly into trade tensions, given that “Europe is target-rich”.
• In addition to global issues, the Eurozone outlook is also vulnerable because of domestic concerns. Growing risks of economic uncertainty have forced European Central Bank (ECB) officials to guide a dovish monetary policy outlook. ECB’s executive board member Piero Cipollone said in an interview with Reuters on Thursday that all officials agree “there is still room for adjusting rates downwards”.
• When asked about the impact of President Trump’s tariffs on the Eurozone, Cipollone said, “If tariffs are imposed on us, the most immediate impact will be on growth”. He also added that tariffs on China would compel it to look to the shared bloc for dumping its goods due to tariffs from the US. Such a scenario will be deflationary for the economy.

Technical Analysis: EUR/USD stays below 50-day EMA