Intro
The yen left most major currencies in the dust (as usual) in the past week. It is actually the strongest among this group since the start of 2025, rising 5% against USD alone. Only GBP was the second most bullish in the past week, although only mildly.
It is going to be an uneventful time this week (with no major economic releases), with our sentiment biases remaining unchanged.
Market Overview
Here is a brief sentiment report for all major currencies.
US Dollar (DXY): Bearish
Euphoria over the possibility of trade wars has dissipated and the administration keeps sending mixed tariff signals.
Weaker-than-anticipated economic data, including the slowdown in manufacturing activity and persistent inflationary pressures, have led the Federal Reserve to adopt a wait-and-see stance toward monetary policy. Such factors herald limited upside risks for the dollar over the near term.
Euro (EUR): Neutral to Bullish
Economic activity within the Eurozone is subdued, and underlying inflation pressures persist. ECB Executive Board member Isabel Schnabel has recently paused interest rate cuts amidst evolving inflation risks.
On the upside, the chances of a Ukrainian ceasefire have helped the euro. This is due to the expectations of reduced energy expenses and economic benefits from reconstruction.
British Pound (GBP): Neutral
The British pound has remained strong against recent economic hardship. The Bank of England’s recent decision to cut interest rates by 25 basis points is due to concerns over poor economic data and geopolitical risks.
While the rate cut will attempt to stimulate economic activity, the present uncertainties overshadow a neutral forecast for the pound.
Japanese Yen (JPY): Bullish
The yen is firmer, following recent highs after a sharp jump in Japanese inflation. January’s inflation in its core measure was its quickest in 19 months.
The inflation rally fueled expectations of rate increases by the Bank of Japan, making the yen more desirable. The safe-haven appeal of the yen keeps drawing funds too on the back of global uncertainty.
In the long term, we should also keep an eye on US Treasury yields – rising yields = lower JPY, while lower yields = higher JPY.
Australian dollar (AUD): Neutral
The Aussie dollar is flat at two-month highs following the Reserve Bank of Australia’s cut in interest rates by 25 basis points to 4.10%. This is the first rate cut since July 2023.
The RBA kept its guard up on further cuts, even after the cut, and this ensured the Aussie dollar maintained a neutral tone.
Always keep in mind that the Australian dollar is procyclical, with particular exposure to China’s geopolitics.
New Zealand dollar (NZD): Neutral
The New Zealand dollar recovered after the Reserve Bank of New Zealand reduced its benchmark rate by 50 basis points to 3.75%.
The central bank indicated a slowing pace of future easing, suggesting that the easing cycle could soon end. This policy has benefited the Kiwi, balancing its perspective against external threats.
Canadian dollar (CAD): Neutral to Bullish
Higher oil prices have made the Canadian currency stronger, which is welcome for Canada’s economy. The Bank of Canada is neutral in policy, with room to tighten if the economic conditions continue to improve.
The favorable correlation between oil prices and the loonie suggests a cautiously optimistic theme.
Swiss Franc (CHF): Bearish
Uncertainty in the global economy continues to propel demand for the franc. The Swiss franc is still a safe-haven currency. However, the Swiss National Bank wants to keep interest rates in the negative.
The new SNB chairman is more keen to cut rates than the last chairman, with the SNB aiming for neutral rates between 0 and 0.5% (currently at 0.5%).
