With quiet markets in Japan and limited UK data, GBP/JPY stays rangebound as BoE cuts loom
GBP/JPY edged lower on Monday. Trading was quiet because Japan had a market holiday and the UK had no major data. The pair stayed in its two-week range and was near 208.80 after dipping to 208.22.
Sterling weakened as traders considered that the Bank of England could start cutting rates as early as March. This view is tied to softer labour-market conditions and easing inflation. BoE policymaker Alan Taylor said there are “two or three more cuts to go before reaching a neutral rate,” and warned about weak productivity and the risk of inflation falling below target.
BBH’s Elias Haddad says the dollar softened after a US tariff ruling, but it’s not decisive yet
BBH says the US dollar started the week weaker after a US Supreme Court ruling on tariffs. However, it notes the move is not yet decisive. BBH remains structurally bearish because of fiscal and trade forces, but stays cyclically neutral because the USD is still tracking interest-rate differentials.
BBH warns the ruling could weaken US fiscal credibility and increase trade frictions. It adds that these structural headwinds could push the USD below what rate spreads would normally suggest, as happened in Q2 last year.
Structural Risks Versus Rate Support
Fed funds futures are fully pricing in 50 bps of rate cuts by year-end. BBH links this pricing to weaker labour demand, fading upside inflation risks, and softer private-sector demand. BBH says the Federal Reserve can stay patient before cutting again. It points to an expected fiscal boost in Q1 from the One Big Beautiful Bill Act (OBBBA), no sign of a layoff spiral, and core services ex-housing PCE inflation holding between 3.2% and 3.4% since March 2025. The dollar has begun the week on a softer footing after the Supreme Court tariff ruling, which raises concerns about the US fiscal outlook and trade policy. This supports our long-term bearish view. For now, though, the dollar is still moving broadly in line with interest-rate differentials. That keeps our near-term view neutral and highlights a push-pull between structural weakness and cyclical support. The key risk is that structural issues could suddenly overwhelm rate support and drag the dollar lower. We saw a similar break in Q2 2025, when the dollar fell 4% even though US yields were attractive, because markets focused on the trade deficit. Traders should watch for another shift like this, where the dollar stops reacting positively to supportive rate news.Trading Implications For The Dollar
Markets are confidently pricing in two full Fed rate cuts by the end of the year. That view is backed by clearer signs of cooling in the labour market. The latest JOLTS data show job openings have fallen to 8.2 million, the lowest since mid-2024. With inflation pressures also easing, the case for eventual rate cuts is strengthening. Even so, BBH argues the Fed can afford to wait, which could support the dollar in the weeks ahead. The large One Big Beautiful Bill Act is adding a meaningful fiscal boost to the economy, and the Fed’s preferred “supercore” inflation measure has remained sticky at around 3.3% since last year. That persistence gives policymakers a reason to delay cuts. For derivatives traders, this tension—future cuts priced in, but a Fed that is not rushing—suggests the dollar may stay range-bound. Expected easing can cap upside, while the Fed’s patience can help set a floor. That can make lower-volatility strategies, such as selling strangles on EUR/USD, more appealing. These trades assume the dollar will not break out decisively in either direction over the next few weeks. Create your live VT Markets account and start trading now.The Chicago Fed National Activity Index in the United States fell from -0.04 to -0.21
The Chicago Fed National Activity Index for the United States came in at -0.21 for December.
The previous reading was -0.04.
Economic Growth Signals Turning Lower
The Chicago Fed National Activity Index fell to -0.21 in December 2025. This points to slower-than-average U.S. growth. It also suggests the economy may stay weak into the first quarter of 2026. We are preparing for more market swings and a more defensive stance. This view is supported by the January 2026 jobs report. Nonfarm payrolls rose by only 145,000, below expectations and the slowest pace in more than a year. Initial jobless claims have also edged up in recent weeks, averaging about 230,000. Together, these reports show that the slowdown seen at the end of 2025 is continuing into the new year. In response, we may consider buying put options on major stock indices such as the S&P 500. This can help protect against a market decline caused by weaker economic conditions. These positions tend to increase in value if stocks fall as investors react to slower growth. The chance of the Federal Reserve pausing, or even hinting at future rate cuts, has risen. The 10-year Treasury yield has dropped by almost 25 basis points over the past month to 3.65% as traders price in a more dovish outlook. We can also consider strategies that benefit from falling rates, such as call options on Treasury bond futures. We also expect volatility to rise from today’s relatively calm levels. The VIX, near 17, may not fully reflect the uncertainty ahead. Buying VIX call options can be a cost-effective way to hedge against a sudden jump in market volatility. In past slowdowns, such as 2015 and 2019, similar moves in the index came before choppy markets and a more dovish Fed shift. While a reading of -0.21 does not yet signal a recession, the negative trend from late 2025 is a warning. It makes sense to adjust our derivatives exposure for a weaker growth backdrop in the weeks ahead.Positioning For Higher Volatility Ahead
Create your live VT Markets account and start trading now.NBC’s Katsoras and Paquet say Supreme Court and White House actions reset tariffs, broadly steadying the dollar outlook
The Supreme Court’s 20 February decision struck down many administration tariffs. This cut the average effective tariff rate on U.S. imports from about 13.6% to 6.4%. The drop was temporary.
After a proclamation last Friday, the President used Section 122 powers to apply a 15% tariff across the board. This pushed the effective rate back to about 12%, bringing back most of the earlier tariff burden.
Tariff Scope And Exemptions
The global 15% tariff only applied to goods that had already faced reciprocal tariffs. Exemptions stayed in place for USMCA-compliant products. Broader exclusions were also added for civil aircraft and parts. Some tariffs may be reduced, but a broad return to freer trade is unlikely. The U.S. is expected to adjust tariffs to keep leverage in negotiations and to avoid making debt projections worse. Legal and policy uncertainty also remains high. The quick shift from the Supreme Court ruling to the new White House 15% tariff confirms the administration’s protectionist stance. Last week’s brief dip in tariff rates looks like a short legal disruption, not a policy change. For the near term, betting on a return to lower tariffs is likely a losing strategy. Ongoing uncertainty also points to higher market volatility. During the first tariff escalations in 2025, the VIX jumped above 20, and Friday’s sudden reversal shows that playbook is still in use. For the next few weeks, buying protection or taking long volatility positions through options or futures may be a sensible approach.Currency And Cross Border Implications
For currency traders, this strengthens the case for a strong, or at least stable, U.S. dollar as trade barriers stay high. However, the USMCA exemptions suggest a potential relative-value trade. The Mexican peso and Canadian dollar could outperform currencies that do not have similar access to the U.S. market. The government’s fiscal position also helps keep tariffs in place. January 2026 CBO projections show federal debt rising above 110% of GDP. That makes tariff revenue politically important. Last year’s tariff collections were close to $125 billion, and they are now a budget item the government will be reluctant to surrender. For equities, the focus should be on clear winners and losers. Derivative strategies may work best on companies with global supply chains—especially in retail and manufacturing—where margins are likely to stay under pressure. In contrast, the carve-out for civil aircraft and parts may support bullish positions in that narrower group of companies. Create your live VT Markets account and start trading now.In December, the US Chicago Fed National Activity Index rose to 0.18 from -0.04
The Chicago Fed National Activity Index rose to 0.18 in December, up from -0.04 the month before.
That is an increase of 0.22 points (from -0.04 to 0.18). The index measures overall U.S. economic activity.
December Activity Rebound
The December 2025 reading showed a clear rebound in economic activity. The index moved from negative to a solid positive level. At the time, this suggested the economy was heading into the new year with stronger momentum than expected. It also eased worries about a sharp slowdown. More recent data has made the outlook less certain. January’s Consumer Price Index was hotter than expected at 3.3%, bringing inflation concerns back into focus. This has made the Federal Reserve’s next steps harder to predict. Markets are now less confident about rate cuts in the first half of the year. The strong growth seen at the end of 2025 may be helping keep prices under pressure. Q4 2025 GDP, reported last month, supported this late-year strength with 2.7% annualized growth. Even so, weekly jobless claims have risen for three straight weeks. This may be an early sign that the labor market is cooling in early 2026. Overall, the story is mixed: strong past data, but early hints of slowing ahead. For traders, this mix can mean higher volatility. Markets are weighing strong backward-looking data against weaker forward indicators. Strategies that can benefit from bigger moves—such as long straddles on the SPX—may be worth considering, especially since the VIX has risen from its January lows. With the data sending mixed signals, upcoming releases could still trigger sharp market reactions.Rates Volatility Trading Focus
This uncertainty also affects rate expectations and can create opportunities in SOFR-linked derivatives. The MOVE index (a measure of bond-market volatility) has risen over the past two weeks, showing the market’s uncertainty about what the Fed will do next. In this environment, trading volatility may be more attractive than making a one-way bet on interest rates. Create your live VT Markets account and start trading now.Rabobank’s Jane Foley says tariff uncertainty is boosting the Swiss franc, strengthening its G10 safe-haven status amid SNB dilemmas
Rabobank said the Swiss franc moved to the top of the G10 performance table on a 1‑day measure after tariff-related uncertainty. The bank linked the move to higher demand for the franc during periods of market stress.
The report said continued CHF strength can hurt Swiss exports and domestic investment. It added that markets see only a small chance of the Swiss National Bank cutting rates below zero this year.
Rabobank also flagged the chance of foreign exchange intervention to curb further CHF gains. It cut its 3‑month EUR/CHF forecast to 0.91 from 0.92.
The report said the CHF may stay strong while geopolitical and trade tensions persist. The article said it was produced using an AI tool and reviewed by an editor.
We are seeing the Swiss franc rise to the top of the G10 currencies after new tariff uncertainty between the US and the EU. This typical flight to safety is creating major headwinds for Swiss exporters. The franc’s steady rise is now a key risk for Switzerland’s economic outlook.
This strength puts the Swiss National Bank in a tough spot, and we see a small but rising chance of a policy response. With Swiss inflation down to 1.2% in January and exports falling 0.5% in the final quarter of 2025, the SNB has reasons to act. Traders are watching for either an unexpected rate cut or direct foreign exchange intervention.
For derivatives traders, this backdrop points to higher implied volatility in franc pairs, especially EUR/CHF. We now expect EUR/CHF to fall to 0.91 over the next three months. That creates potential options trades that can profit from either more franc strength or a sharp reversal. The main risk is a sudden SNB announcement that could quickly move the exchange rate.
The SNB’s sudden removal of the euro peg in 2015 shows it can take decisive action that moves markets. Today’s setup is different, but that event highlights the risk of forceful intervention if officials see franc strength as a threat. This history also means short CHF positions can carry meaningful tail risk.
In London, futures diverge: the S&P leads above CP/POC, the Dow sits below the pivot, and the Nasdaq tests lower-gate support
London mid-session futures were mixed ahead of New York. S&P 500 futures were above the central pivot (CP) and point of control (POC). Dow futures were below CP. Nasdaq futures were below CP and sitting near lower-gate support.
Dow (YM) levels were: upper range 50,360, CP 49,606, lower range 48,852, and POC 49,360. Gates were 49,784–50,000 (upper) and 49,428–49,208 (lower), with price at 49,548.
Dow Key Decision Level
YM rotated up from POC toward CP, making 49,606 the key decision level. Holding above CP points to 49,784–50,000. Failing at CP keeps focus on 49,428–49,208. S&P 500 (ES) levels were: upper range 7,010.00, CP 6,866.50, lower range 6,640.50, and POC 6,872.50. Gates were 6,909.75–6,936.50 (upper) and 6,803.25–6,753.50 (lower), with price at 6,905.75. ES held above CP and POC and pushed into the upper half of the map. Holding CP targets 6,909.75–6,936.50. Losing CP shifts attention to 6,803.25–6,753.50. Nasdaq (MNQ/ENQ) levels were: upper range 28,014.75, CP 25,514.25, lower range 23,434.00, and POC 24,848.00. Gates were 26,104.00–26,469.00 (upper) and 25,023.00–24,719.00 (lower), with price at 24,932.New York Open Focus
Nasdaq held above POC but stayed below CP near the lower gate. Recent rotation showed selling pressure. A move above 25,514.25 opens 26,104–26,469. Continued weakness keeps focus on 25,023–24,719, with risk of a deeper rotation if that area breaks. For the New York open, the focus was on acceptance or rejection at CP and the gate zones, especially in the first 15–30 minutes. Conditions improve if ES holds CP/POC, YM takes 49,606, and Nasdaq holds the lower gate and rotates back toward CP. The market is split: the S&P 500 is leading, while the Nasdaq is lagging. This divergence suggests caution. Conviction is not consistent across indexes, so it may be best to avoid large, one-way directional bets until they line up. This separation looks like the rotational market seen in late 2025, when inflation fears returned. The January 2026 jobs report was stronger than expected, with 215,000 jobs added. That makes near-term rate cuts less likely, which can pressure rate-sensitive tech stocks. This backdrop supports the current weakness in the Nasdaq. For the S&P 500, the strategy favors the long side as long as price holds above the key pivot at 6,866. One options approach is selling put spreads below this level to lean into its relative strength. If the S&P 500 loses this support, it may signal the broader market is rolling over. Because the Nasdaq is the weakest index, watch whether it fails at its pivot at 25,514. A failure to reclaim that level could set up short opportunities, such as buying puts aimed at a breakdown below the lower support gate near 24,719. A break there would suggest downside momentum is building. The S&P 500/Nasdaq divergence also makes a pairs trade attractive over the next few weeks. One idea is long S&P 500 futures (ES) and short Nasdaq futures (NQ) to focus on relative performance. This could work if current conditions persist, including a VIX near a moderate 16.5. The Dow is the swing factor. It is still below its pivot at 49,606, so it remains neutral until it either reclaims that level to confirm strength or fails and follows the Nasdaq lower. Until then, it may suit short-term range traders. Near term, watch for confirmation or failure of the divergence. If the Nasdaq stabilizes and the Dow retakes its pivot, the broader rally can continue. If they stay weak and the S&P 500 loses support, be ready for a wider defensive shift. Create your live VT Markets account and start trading now.MUFG’s Derek Halpenny says Takaichi’s priorities and smaller supplementary budgets could slow the Bank of Japan’s gradual tightening
MUFG links Japan’s fiscal plans under PM Takaichi to a gradual path toward Bank of Japan (BoJ) policy normalisation. It says shifting away from supplementary budgets and toward investment-led spending could support this change.
MUFG expects the FY2026 budget to pass, with the government aiming to enact it by the end of the current fiscal year. It says that once the budget is approved and the details are confirmed, the chance of a BoJ rate increase could rise.
Fiscal Policy And Boj Normalisation
MUFG puts the probability of a rate rise at the 28 April meeting at about 70%. It adds that if the FY2026 budget passes by then and USD/JPY stays near current levels, pressure on the BoJ to act could increase. The firm notes the government may name replacements next week for two BoJ Board members, Asahi Noguchi and Junko Nakagawa. It says both are viewed as dovish, and new appointments could change the balance of the Board. MUFG also notes that nationwide CPI data on Friday was weaker than expected. It says this alone does not change the outlook for an April hike, but repeated weak readings could affect later decisions. The government’s shift toward investment-led growth suggests a BoJ rate hike is becoming more likely, with the 28 April meeting a key date. We are watching for the FY2026 budget to pass before the end of March as a final trigger for the BoJ to move. This could create opportunities for traders in the weeks ahead.Trading Implications For Yen Rates And Volatility
With USD/JPY still high near 152.50, a rate hike would likely be aimed at supporting the yen. We think traders may want to consider positions that benefit from a lower USD/JPY, using options or futures to capture a narrowing US-Japan interest rate gap. The possible replacement of two dovish BoJ board members could also support a more hawkish policy tilt. We expect implied volatility in yen pairs to rise into late April. In 2025, policy changes often triggered sharp swings, which made long-volatility trades like straddles more appealing. A straddle can profit from a large move in either direction after the BoJ decision. January inflation data also keeps pressure on the BoJ, with core CPI at 1.9% even though it was slightly below forecasts. A more important release will be the result of the “shunto” spring wage talks due in mid-March. If wage growth is strong—similar to the multi-decade highs seen in 2025—an April hike would look highly likely. Outside FX, the most direct trade may be in Japanese government bonds (JGBs). A rate hike would tend to push yields up and bond prices down, which can support short positions in JGB futures. This would reflect markets continuing to move away from the era of ultra-loose monetary policy. Create your live VT Markets account and start trading now.EUR/GBP stays range-bound, capped near 0.8750, as investors await Eurozone CPI and German GDP data
EUR/GBP traded sideways on Monday and stayed below 0.8750. The pair was rejected several times near that level and hovered around 0.8736. The Pound was slightly stronger than the Euro.
Germany’s IFO Business Climate Index rose to 88.6 in February (vs. 88.4 expected), up from 87.6 in January. The Current Assessment Index climbed to 86.7 (vs. 86.1 expected), from 85.7. The Expectations Index rose to 90.5, matching forecasts and up from 89.6.
Eurozone Data In Focus
Markets stayed cautious ahead of Tuesday’s Eurozone inflation data and Germany’s fourth-quarter GDP report. Eurozone core HICP is expected at 2.2% year-on-year in January, down from 2.3% in December. Headline HICP is expected to stay at 1.7%. Preliminary inflation data from Germany, France, and Spain is due later this week. Market pricing suggests the ECB will keep policy unchanged through the year. In the UK, markets are pricing in possible Bank of England rate cuts as early as March after softer inflation and weaker jobs data. BoE policymaker Alan Taylor said there are “two or three more cuts to go before reaching a neutral rate” and warned that weaker productivity growth is a risk. The UK data calendar is light this week. That leaves EUR/GBP mainly driven by Eurozone releases and broader market sentiment.Shifting Policy Divergence
In early 2025, EUR/GBP was stuck in a range below the 0.8750 resistance level as traders weighed central bank policy. That level remains an important psychological barrier, even though the pair now trades lower around 0.8680. The story, however, has changed a lot since last year. In 2025, the market expected Eurozone inflation to cool. Instead, it has picked up. The January 2026 flash estimate showed Eurozone core HICP rising unexpectedly to 2.9%, well above the ECB’s target. This has pushed the ECB to sound more hawkish, which is very different from its more neutral tone at the same time last year. At the same time, the Bank of England—once expected to cut rates sharply in 2025—is now on hold. After several cuts last year, UK inflation has stayed stubborn, holding at 2.5% in the latest reading. That has slowed any further dovish moves, as the BoE waits for clearer evidence. This new policy split—a hawkish ECB and a neutral BoE—should, in theory, support the Euro more than the setup we saw in 2025. But EUR/GBP has not rallied in a convincing way. That points to weakness in the Euro, or to market doubts about the outlook. It also suggests option traders may want strategies that benefit from a breakout. The biggest drag on the Euro still looks like Germany’s weak economy. German GDP contracted by 0.2% in the final quarter of 2025, extending a period of industrial stagnation. This leaves the ECB in a tough spot: it needs to fight inflation while the region’s largest economy struggles. With this clash between tighter-sounding policy and a weak growth backdrop, implied volatility may rise ahead of key data releases. Buying volatility through straddles or strangles could be a sensible approach. These strategies can profit from a strong move in either direction, which may be more likely than more sideways trading. Create your live VT Markets account and start trading now.Bhargava says Asia gains overall as the US shifts from reciprocal IEEPA tariffs to a flat Section 122 surcharge
The US switched from reciprocal IEEPA tariffs to a flat Section 122 surcharge after a Supreme Court ruling. President Donald Trump set the surcharge at 10%, then raised it to 15% on 22 February.
This shift lowers effective tariff rates for several Asian exporters. Under the new 15% rate, China and India see tariff cuts of 7.1 points and 5.6 points, respectively.
