- Investors expect 65bps worth of Fed cuts for 2026
- FOMC meeting minutes and Q4 GDP data awaited
- Yen recovers some GDP-related losses, aussie and pound slip
- Wall Street set to open lower, gold extends pullback
Dollar Holds Ground Ahead of Fed Minutes and GDP
The extended its recovery against most of its peers on Monday, losing some ground only against the and the . It is holding its ground today as well, but it is surrendering a large portion of the gains it made against the .
Although the recovery in the greenback was bolstered by Wednesday’s better-than-expected US jobs data, the slowdown in Friday’s figures prompted investors to add to their bets, even though the world’s reserve currency did not give back any of its -related gains.
According to Fed fund futures, market participants are penciling in 65bps worth of by the end of the year, which translates into two quarter-point reductions and a more-than-50% chance of a third. With all that in mind, investors may be waiting for the minutes of the latest , due out tomorrow, and Friday’s first estimate of for the last quarter of 2025.
At the latest gathering, Fed officials kept interest rates untouched with Fed Chair Powell noting that the downside risks to the labor market have diminished. It will be interesting to see whether his colleagues shared that same view, which was corroborated by the January employment data.
However, San Francisco Fed President Mary Daly could offer a more up-to-date view as she steps up to the rostrum today. Ahead of the January jobs data, Daly appeared very concerned about the state of the labor market, noting that low hiring and low firing may quickly change to a no-hiring and more-firing labor market. But did she change her mind after Wednesday’s blockbuster report?
The weekly employment change could also attract some attention given the Fed’s emphasis on the labor market.
Yen Slides on GDP Data, Recovers on Intervention Concerns
The yen came under selling interest on Monday after the Japanese data for Q4, 2025, pointed to a more modest-than-expected rebound in economic activity, to 0.1% q/q from a downwardly revised 0.7% contraction. Although this means that Japan avoided a technical recession, tepid growth corroborates PM Takaichi’s push for more aggressive fiscal stimulus. It also suggests that the BoJ should not rush into further raising interest rates. Indeed, according to Japan’s Overnight Index Swaps (OIS) market, the next 25bps rate increase is nearly fully priced in for June, after the shunto wage negotiations.
Today, the yen is staging a comeback, perhaps as traders are reluctant to maintain their short positions for long in fear of a US-Japan coordinated intervention in the FX market.
Aussie Retreats After RBA Minutes, Pound Slides on UK Jobs Data
The Aussie pulled back after the minutes of the latest RBA decision, where officials pressed the rate-hike button, revealed that the board was skeptical about whether additional rate increases could be warranted soon. Nevertheless, they remained concerned about sticky inflation and thus, the probability of a back-to-back rate hike at the upcoming meeting was not reduced significantly. It just slid to 17% from around 20%. This means that the uptrend in aussie/dollar could remain in play for a while longer as the divergence in monetary policy expectations between the RBA and the Fed remains intact.
The pound slipped after the UK employment report for December showed that the ticked up to 5.2% and average earnings slowed to 4.2% y/y from 4.6%, adding to the chances of a rate cut by the BoE in March. That probability now stands at 75% and a slowdown in tomorrow’s CPI inflation data could seal the deal.
Tonight, during Wednesday’s Asian session, the RBNZ is expected to keep interest rates on hold and thus, kiwi traders may lock their gaze on the forward guidance and any hints about whether and when officials are planning to start raising borrowing costs. According to New Zealand’s OIS market, a 25bps rate hike is fully priced in for October.
Stocks Feel the Heat of AI Concerns, Gold Back Below $5,000
Wall Street was closed yesterday in observance of President’s Day, but US stock index futures continued trading on electronic platforms, though with reduced hours and trading volumes. Today, futures are in the red, with contracts down nearly 0.70%.
This suggests that Wall Street may open with a negative gap today as investors remain concerned about massive AI capex costs and the disruptive impact of AI on jobs and business models.
Defensive stocks appear to be benefiting from the rotation out of technology, but there hasn’t been significant flight towards the ultimate safe haven, . The precious metal is sliding today after dropping below the $5,000 mark yesterday.
