• EUR/USD remains subdued as traders adopt caution ahead of Eurozone Retail Sales due on Thursday.
• ECB officials are confident about inflation sustainably returning to the central bank’s target of 2% this year.
• Fed’s Jefferson expressed his satisfaction with keeping the Fed Funds rate at its current level.

EUR/USD depreciates after two days of gains, trading around 1.0390 during the Asian session on Thursday. Traders await Eurozone Retail Sales data scheduled to be released later in the day.

Market forecasts anticipate Pan-European Retail Sales to grow 1.9% year-over-year in December, up from a 1.2% rise in the previous month. However, the MoM figure for December is expected to decline by 0.1%, against the previous 0.1% increase.

The Euro remains subdued amid ongoing expectations that the European Central Bank (ECB) will continue with its policy-easing spree, given that officials are confident about inflation sustainably returning to the central bank’s target of 2% this year.

The EUR/USD pair could have received downward pressure as the US Dollar Index (DXY), which measures the US Dollar’s (USD) value against six major currencies, holds ground following its three-day losing streak. The DXY trades around 107.70 at the time of writing.

On Thursday, Federal Reserve Vice Chair Philip Jefferson expressed satisfaction with maintaining the current Fed Funds rate, stating that he plans to assess the overall impact of Trump’s policies before making further decisions. He also highlighted that, despite a 100-basis-point decrease, the Fed’s rate remains restrictive for the economy.

On Wednesday, the weaker US Services Purchasing Manager Index (PMI) weighed on the Greenback. The US ISM Services PMI eased to 52.8 in January from 54.0 (revised from 54.1) in December. This reading came in below the market consensus of 54.3. Traders brace for Friday’s US Nonfarm Payrolls (NFP) data, which is expected to shape the Federal Reserve’s (Fed) monetary policy direction.

• GBP/JPY attracts some sellers to around 190.25 in Thursday’s early European session, down 0.35% on the day. 
• The cross keeps the negative outlook below the 100-period EMA with a bearish RSI indicator. 
• The initial support emerges at 190.00; first upside barrier is located at 192.40.

The GBP/JPY cross trades in a negative territory around 190.25 during the early European trading hours on Thursday. The growing speculation that the Bank of Japan (BoJ) would keep raising interest rates provides some support to the Japanese Yen (JPY) and creates a headwind for the cross.

Technically, the bearish outlook of GBP/JPY remains in play as the major pair remains capped below the key 100-period Exponential Moving Average (EMA) on the 4-hour chart. Furthermore, the downward momentum is supported by the Relative Strength Index (RSI), which is located below the midline around 37.00, suggesting that the path of least resistance is to the downside.

The first downside target for the cross emerges at the 190.00 psychological mark. Extended losses could see a drop to the lower limit of the Bollinger Band at 189.70. A decisive break below the mentioned level could pave the way to 189.34, the low of January 17.

On the bright side, the 100-period EMA at 192.40 acts as an immediate resistance level for the cross. Sustained trading above this level could attract some buyers to 193.54, the upper boundary of the Bollinger Band. Further north, the next hurdle is seen at 194.71, the high of January 27.

GBP/JPY 4-hour chart

• USD/CHF edges higher and snaps a three-day losing streak to over a one-week low.
• A modest USD strength offers some support to the major amid a positive risk tone.
• Fed rate cut bets might cap the USD and warrant caution for aggressive bullish traders.

The USD/CHF pair defends the 0.9000 psychological mark and attracts some dip-buyers during the Asian session on Thursday, snapping a three-day losing streak to over a one-week low touched the previous day. Spot prices currently trade around the 0.9030 area, up over 0.15% for the day, though the fundamental backdrop warrants caution before confirming that this week’s sharp pullback from the 0.9200 neighborhood has run its course.

The US Dollar (USD) stages a modest recovery following the recent slump to its lowest level in over a week. Apart from this, a generally positive tone around the equity markets is seen undermining the safe-haven Swiss Franc (CHF) and turns out to be another factor lending some support to the USD/CHF pair. Any meaningful USD appreciation, however, seems elusive in the wake of bets for further policy easing by the Federal Reserve (Fed).

In fact, the markets are pricing in the possibility that the US central bank will lower borrowing costs twice by the end of this year. The bets were reaffirmed by the disappointing release of the US ISM Services PMI, which declined to 52.8 in January. This, to a larger extent, overshadowed the ADP report showing that private-sector employment increased by 183K in January compared to the previous month’s upwardly revised reading of 176 K.

Apart from this, concerns about the escalating US-China trade war and the potential economic fallout from US President Donald Trump’s trade tariffs could keep a lid on the market optimism. This, in turn, might hold back traders from placing aggressive bearish bets around the safe-haven CHF and cap the USD/CHF pair. Hence, it will be prudent to wait for strong follow-through buying before positioning for any further gains.

• EUR/GBP weakens to around 0.8320 in Thursday’s early European session. 
• Concerns about Trump’s trade tariffs undermine the shared currency. 
• The BoE is widely expected to cut its key interest rate on Thursday. 

The EUR/GBP cross remains on the defensive around 0.8320 during the early European session on Thursday. The concerns that US President Donald Trump would slap tariffs on goods from the European Union weigh on the Euro (EUR) against the Pound Sterling (GBP). All eyes will be on the Bank of England (BoE) interest rate decision on Thursday.

Following his announcement of import tariffs on Canada, Mexico, and China on Monday, Donald Trump promised to impose the EU next. The EU intends to retaliate against the US if Trump follows through on his threats to slap tariffs on the bloc. This, in turn, exerts some selling pressure on the shared currency.

On the GBP front, investors expect the BoE to reduce borrowing costs by a quarter point to 4.50% at its February meeting on Thursday. “The BoE is likely to justify the move, even though inflation remains above (bank) target due to a sluggish economy and a softening in the labor market in recent months,” noted Kathleen Brooks, research director at XTB trading group.

Market players will closely monitor how the UK central bank assesses any potential inflationary impact from the fiscal reforms announced by the government in October 2024, which include a significant hike in the tax businesses face on payrolls. Sticky inflation might limit BoE Governor Andrew Bailey’s ability to cut rates much further, supporting the GBP.

• GBP/JPY extends its losses due to rising expectations of the BoE delivering a 25 basis points rate cut on Thursday.
• The BoE’s MPC is expected to vote 8-1 in favor of a quarter-point rate cut, bringing the rate down to 4.5%.
• The robust wage and services data in Japan has bolstered hawkish sentiment surrounding the BoJ’s rate hikes.

GBP/JPY continues to lose ground for the second consecutive day, trading around 190.40 during the early European hours on Thursday. The GBP/JPY cross struggles as the Pound Sterling (GBP) faces downward pressure amid expectations that the Bank of England (BoE) will resume its policy-easing cycle, likely lowering interest rates by 25 basis points (bps) to 4.5% at its policy meeting later in the day.

The BoE’s Monetary Policy Committee (MPC) is anticipated to vote 8-1 in favor of a quarter-point rate cut to 4.5%, with MPC member Catherine Mann, who has been an outspoken hawk, is expected to support keeping interest rates steady at 4.75%.

The inflationary pressures in the United Kingdom (UK) decelerated at a faster-than-expected pace in December. Inflation in the services sector – which is closely tracked by BoE officials – grew at a moderate pace of 4.4%, compared to 5% growth in November.

The Japanese Yen (JPY) strengthens against its peers as robust wage and services data fuel expectations of a more hawkish Bank of Japan (BoJ). Data showed that real wages in Japan increased for the second straight month in December, while nominal wage growth reached its highest level in nearly three decades.

Japan’s Finance Minister, Katsunobu Kato, told parliament on Thursday that deflation has not yet ended. Kato also noted ongoing inflationary conditions as prices continue to rise.

Société Générale’s FX analysts noted that the Japanese Yen is outperforming, while 10-year JGB yields have risen to nearly 1.30%, the highest level since April 2011. However, with the BoJ policy rate expected to peak around 1.00% over the next two years, the upside for both JPY and JGB yields remains limited.

• The Pound Sterling stabilizes against its major peers, except safe-haven assets, ahead of the BoE’s monetary policy on Thursday.
• The BoE is widely anticipated to cut interest rates by 25 bps to 4.5%.
• Investors await the US NFP data, which will influence expectations for the Fed’s monetary policy outlook.

The Pound Sterling (GBP) stabilizes against its major peers, except safe-haven currencies, on Thursday ahead of the Bank of England’s (BoE) monetary policy decision, which will be announced at 12:00 GMT. The BoE is almost certain to cut interest rates by 25 basis points (bps) to 4.5%, with an 8-1 vote split. Monetary Policy Committee (MPC) member Catherine Mann, who has been an outspoken hawk, is expected to support keeping interest rates unchanged at 4.75%.

The BoE is expected to announce an interest rate cut decision in an attempt to revive labor demand amid stagnating economic growth. This would be the third interest rate cut by the BoE in its current policy-easing cycle, which started at the August 2024 policy meeting.

United Kingdom (UK) employers have tempered the pace of hiring after Chancellor of the Exchequer Rachel Reeves announced an increase in employers’ contributions to National Insurance (NI). The last three employment readings suggest the labor force rose at a declining pace.

The UK Gross Domestic Product (GDP) growth remained flat in the third quarter and in the October-November period.

Investors will pay close attention to BoE Governor Andrew Bailey’s press conference after the policy decision to get cues about the inflation outlook and the monetary policy guidance.

Inflationary pressures in the UK decelerated at a faster-than-expected pace in December. Still, analysts at Citi expect an uptick in inflation ahead due to a sharp increase in wage growth and a reversal in energy prices.

Meanwhile, traders are pricing in a 56 bps interest rate reduction for the entire year after a quarter-to-percent cut on Thursday.

Daily digest market movers: Pound Sterling falls against USD as latter gauges temporary support

• The Pound Sterling ticks lower to near 1.2480 against the US Dollar (USD) in Thursday’s European session. The GBP/USD pair edges lower as the US Dollar strives to gain ground ahead of the United States (US) Nonfarm Payrolls (NFP) data for January, which will be released on Friday.
• The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, finds a temporary support near 107.30 after a three-day sell-off from the two-week high near 110.00.
• The official United States (US) employment data is expected to drive market speculation about how long the Federal Reserve (Fed) will hold interest rates at their current levels. Last week, Fed Chair Jerome Powell said that they would make monetary policy adjustments only after seeing “real progress in inflation or at least some weakness in the labor market” after the central bank left interest rates unchanged in the range of 4.25%-4.50%.
• According to the CME FedWatch tool, the Fed is expected to announce its next interest rate cut in June’s policy meeting.
• The US Dollar witnessed a sharp sell-off in the first three trading days of the week as fears of a global trade war receded. Investors expect the trade war to remain between the US and China as the latter retaliated to US President Donald Trump’s imposition of 10% tariffs with 15% levies on Coal and Liquified Natural Gas (LNG) and 10% on Crude Oil, farm equipment and some autos. Meanwhile, President Trump suspended 25% tariff orders on Canada and Mexico for 30 days.

Technical Analysis: Pound Sterling struggles below 1.2500

• EUR/JPY edges lower to 158.45 in Thursday’s early European session, losing 0.27% on the day. 
• The negative view of the cross remains intact below the 100-period EMA with a bearish RSI indicator. 
• The first downside target to watch is 158.00; the key upside barrier emerges at 160.00.

The EUR/JPY cross extends its decline to around 158.45 during the early European session on Thursday. Recent hawkish remarks from some Bank of Japan (BoJ) officials bolstered the odds of a Japanese interest rate hike in March, supporting the Japanese Yen (JPY). BoJ Board Member, Tamura Naoki, said on Thursday that the central bank must raise interest rates to at least 1% by the second half of the fiscal year beginning in April.

According to the 4-hour chart, EUR/JPY remains capped under the key 100-period Exponential Moving Averages (EMA), suggesting that the path of least resistance is to the downside. The downward momentum is reinforced by the Relative Strength Index (RSI), which stands below the midline near 38.00, supporting the sellers in the near term.

The lower limit of the Bollinger Band and round mark at 158.00 act as an initial support level for the cross. A breach of this level could see a drop to 156.18, the low of December 3, 2024. Further south, the next contention level to watch is 155.15, the low of September 16, 2024.

On the other hand, the crucial resistance level emerges at the 160.00 psychological level. The additional upside filter to watch is 160.80, the upper boundary of the Bollinger Band, en route to 161.00, the 100-period EMA.

EUR/JPY 4-hour chart

Major currency pairs stay relatively quiet early Thursday as investors gear up for the upcoming key events. The Bank of England (BoE) will announce monetary policy decisions. Governor Andrew Bailey will speak on the policy outlook and respond to questions in a press conference afterward. Later in the day, the US economic calendar will feature weekly Initial Jobless Claims and Unit Labor Costs data for the fourth quarter.

The US Dollar (USD) struggled to find demand on Wednesday following the disappointing ISM Services PMI data. Additionally, improving risk mood put additional weight on the currency’s shoulders, as Wall Street’s main indexes registered gains for the second consecutive day. After falling 0.4% on Tuesday, the USD Index lost more than 0.3% on Wednesday.

US Treasury Secretary Scott Bessent said late Wednesday that US President Donald Trump is not calling for the Fed to lower interest rates. “Interest rates will take care of themselves if we get energy costs down and deregulate the economy,” he added and said that their focus is on bringing down the 10-year US Treasury yields. After falling nearly 2% on Wednesday, the 10-year yield fluctuates in a tight range above 4.4%.

The BoE is forecast to lower the policy rate by 25 basis points to 4.5% after the February policy meeting. GBP/USD touched its highest level in nearly a month at 1.2550 on Wednesday but erased a portion of its daily gains in the late American session. The pair corrects lower early Thursday and trades below 1.2500.

EUR/USD closed marginally higher on Wednesday but failed to stabilize above 1.0400. The pair was last seen losing 0.2% on the day near 1.0380.

USD/JPY declined sharply and lost more than 1% on Wednesday. After extending its slide to its weakest level since early December below 152.00 in the Asian session on Thursday, the pair regained its traction and turned flat on the day, above 152.50.

Gold preserved its bullish momentum on Wednesday and set a new record-high of $2,882 during the American trading hours. XAU/USD stays on the back foot early Thursday and declines toward $2,850.

• NZD/USD tests the nine-day EMA at 0.5654, followed by the psychological level of 0.5650.
• The 14-day RSI is positioned at the 50 level, confirming an ongoing neutral bias.
• The key resistance zone appears at its eight-week high of 0.5794, followed by the psychological level of 0.5800.

The NZD/USD pair breaks its four-day winning streak, trading around 0.5660 during the European hours on Thursday. The technical analysis of the daily chart indicates that buyers and sellers are unsure of the long-term direction of the asset as the pair consolidates within a rectangular pattern.

Additionally, the 14-day Relative Strength Index (RSI) is positioned at the 50 level, confirming an ongoing neutral bias. However, the NZD/USD pair remains slightly above the nine-day Exponential Moving Average (EMA), reflecting that short-term price momentum still has some spark.

On the upside, the NZD/USD pair could navigate the area around its eight-week high of 0.5794, reached on January 24. The further barrier appears at the psychological level of 0.5800, aligned with the upper boundary of the rectangle at 0.5820.

Regarding its support, the NZD/USD pair tests immediate nine-day EMA at 0.5654, aligned with the psychological level of 0.5650. A break below this level could lead the pair to navigate the region around its support area at 0.5526—its lowest point since October 2022, reached on December 25. Further support appears near the lower edge of its descending channel at the 0.5500 level.

NZD/USD: Daily Chart