Intro
The past week was as uneventful as the previous; it may be just a January or New Year thing, as everyone returns to normalcy.
There are some slight changes to my sentiment ratings, although I remain neutral on half of the currencies. The Bank of Japan’s interest rate decision is the main high-impact news event this week, but a hold is the expected outcome. So, nothing wild should occur, though remain cautious if trading any JPY pairs due to their volatility.
Nonetheless, let’s go through our latest sentiment report.
Market Overview
Here is a brief sentiment report for all major currencies.
US Dollar (USD): Neutral
The Fed is in a pause phase after cutting rates to 3.50%–3.75%, with Fed speakers stressing that policy is “in a good place” and that adjustments should be deliberate. So, the dollar can get tactical support when markets scale back near-term cut bets.
But the easing cycle in 2025 still leaves the broader backdrop with a lower yield advantage than before, and policymakers also acknowledge that job-market downside risks are something to stay ready for.
Key news to watch: Initial Jobless Claims on Thursday
Euro (EUR): Bearish
The ECB is broadly expected to keep the deposit rate at 2%, and senior officials argue the euro area could see a cyclical recovery, with markets now largely pricing a steady path this year.
That relative ‘hold’ stance versus a Fed that already cut hard in 2025 tends to support EUR on dips, though global risk/trade headlines can still cap the upside.
British Pound (GBP): Bullish
The BoE has already cut to 3.75%, and its own guidance says rates are likely to fall further if pay growth and services inflation keep easing. So, the policy bias is now clearly toward more easing.
A key BoE policymaker (Taylor) recently reinforced that view, saying rates should continue to fall as inflation looks set to settle around target sooner than previously projected. This can weigh on GBP’s rate support.
Key news to watch: unemployment rate on Tuesday; inflation rate on Wednesday
Japanese Yen (JPY): Neutral
Japan has shifted into real normalisation, with the BoJ now at 0.75% (highest in ~30 years), which is a structural positive over time because it narrows yield gaps.
But near-term, the yen is dealing with political uncertainty (snap election talk), volatile local markets, and officials hinting at possible FX action as JPY sits weak. So, fundamentals and flow dynamics are pulling in different directions.
Key news to watch: Inflation Rate YoY and interest rate decision on Friday
Australian dollar (AUD): Neutral
The RBA held at 3.60% in December and kept policy firmly data-dependent. Recent inflation remains above target, and markets are debating whether the next move later in 2026 could be a hike (not a cut) if disinflation stalls. That steadier/hawkish-leaning rates backdrop supports AUD on dips, but the currency remains heavily leveraged to global risk and China/commodities.
New Zealand dollar (NZD): Neutral
The RBNZ cut the OCR to 2.25%, and its own statement leaned on the idea that rates are still working through the economy, with activity expected to strengthen through 2026—but with plenty of “optionality” if conditions change.
Governor commentary has also pushed back against markets pricing quick hikes, reiterating rates are likely to stay low through 2026, which keeps NZD’s rate support softer than many peers.
Canadian dollar (CAD): Bearish
The BoC held the overnight rate at 2.25% last month, reinforcing the idea that cuts may be slowing or pausing if inflation stays contained and activity proves resilient enough.
For CAD, this ‘pause potential’ can be supportive, but the currency is still dominated by oil and the broad risk tone. So, it often trades as a macro/commodity proxy rather than on Canada-only fundamentals.
Swiss Franc (CHF): Bearish
The SNB is still at 0%, and recent SNB minutes indicate rates are likely to stay on hold even though inflation has been very low, keeping CHF’s “low inflation + haven” profile intact. The main caveat is the SNB’s willingness to use FX intervention to smooth excessive strength, so CHF can be firm without moving in a straight line.
