EUR/USD holds near 1.1770 above 1.1750 as US data and Eurozone PMIs near, while ECB speculation caps gains
EUR/USD traded near 1.1770 in early Asian trading on Friday and stayed above 1.1750. Gains in the Euro were limited as traders focused on possible changes in European Central Bank leadership.
The Financial Times reported that ECB President Christine Lagarde may leave before the end of her eight-year term. Analysts said an early exit could let Emmanuel Macron and Friedrich Merz influence the choice of her successor ahead of the April 2027 French presidential election.
Japan Statistics Bureau reports January national CPI up 1.5% year on year, easing from 2.1%, with core inflation expected
Japan’s National CPI rose 1.5% year on year in January, down from 2.1%, according to the Japan Statistics Bureau. National CPI excluding fresh food rose 2.0% year on year, down from 2.4% and in line with market expectations.
CPI excluding fresh food and energy rose 2.6% year on year in January, compared with 2.9% previously. After the release, USD/JPY was up 0.16% at 155.05.
Inflation And Core Measures
Inflation shows how prices rise for a basket of goods and services. It is often reported as month-on-month (MoM) and year-on-year (YoY) changes. Core inflation removes more volatile items, such as food and fuel, and is often used for policy targets around 2%. The Consumer Price Index (CPI) measures how prices change over time for a basket of goods and services. It is also reported on MoM and YoY bases. Core CPI excludes volatile food and fuel items, and higher core readings are often linked to higher interest rates. In foreign exchange, central banks may raise interest rates to fight higher inflation, which can support a currency. For gold, higher interest rates can reduce demand because they increase the cost of holding a non-yielding asset. Lower inflation can have the opposite effect. Japan’s latest inflation data shows a clear cooling trend, with the core rate falling back to the 2.0% target in January. This slowdown reduces the pressure on the Bank of Japan to raise interest rates again in the near term. As a result, the large interest-rate gap between the United States and Japan is likely to remain, supporting a stronger dollar against the yen. This view is supported by recent US data. Early February non-farm payrolls surprised to the upside, with 210,000 jobs added. This strength suggests the Federal Reserve is unlikely to rush into interest-rate cuts. This policy gap remains the main reason USD/JPY is holding near the 155 level.Options Strategy For Usd Jpy
For derivatives traders, this backdrop makes USD/JPY call options attractive over the next few weeks. We are looking at strikes around 157 or 158, with expirations in late March or April, to benefit from any further yen weakness. This strategy offers defined risk if the current trend continues. Looking back at 2025, the Bank of Japan’s cautious stance after its historic policy shift stopped the yen from sustaining a rally. Today, implied volatility for USD/JPY options is near 7.5%, well below the double-digit levels seen for much of last year. Lower volatility makes option premiums cheaper, which may create a good entry point for new positions. Create your live VT Markets account and start trading now.Japan’s annual CPI eased to 1.5% in January, down from 2.1% previously
Japan’s national Consumer Price Index (CPI) rose 1.5% year on year in January, down from 2.1% in the prior reading.
This sharp fall in inflation to 1.5% is well below the Bank of Japan’s 2% target. It also reduces any near-term need for the central bank to raise interest rates from today’s ultra-low levels. We believe this supports the view that policy will stay accommodative for the foreseeable future.
Implications For Currency Markets
For currency traders, this likely adds downside pressure on the Japanese yen. The growing interest rate gap versus other major economies makes the yen a popular funding currency for carry trades. USD/JPY has already moved above 158 this month, and the latest data supports the case for further upside. This backdrop is also positive for Japanese equities, especially exporters that benefit from a weaker currency. The Nikkei 225 is trading near 41,000, a multi-decade high, supported by strong corporate earnings. We would consider long positions in Nikkei 225 futures or call options to take advantage of this trend. With a rate hike unlikely in the near term, Japanese Government Bond (JGB) yields should remain contained. That can make long positions in JGB futures a reasonable strategy over the coming weeks. Traders may also consider derivatives that benefit from continued low interest-rate volatility. In 2025, markets repeatedly priced in policy normalization that did not materialize. The January 2026 inflation reading fits this pattern of a slow and patient Bank of Japan. As a result, the current mix of a weaker yen and stronger equities may continue.Outlook For Rates And Risk Assets
Create your live VT Markets account and start trading now.Japan’s core CPI, excluding fresh food, rose 2% year on year in January, matching expectations
Japan’s national consumer price index (CPI), excluding fresh food, rose 2% year on year in January. This matched expectations.
This figure is the core CPI measure, which removes fresh food prices. It helps track inflation trends with fewer short-term swings.
Bank Of Japan Policy Implications
Japan’s core inflation has reached the Bank of Japan’s 2% target, making this an important turning point. Because the result matched forecasts, it is not a surprise, but it strengthens the case for the BoJ to move away from negative interest rates. We should be ready for a major policy change, possibly at the March or April meeting. This supports the yen and may push USD/JPY lower. Recent market data shows a sharp rise in demand for JPY call options, suggesting more investors expect the yen to strengthen. We may want to position for a move toward 140–142 by buying USD/JPY puts or selling futures. The end of Yield Curve Control now looks like a matter of timing, not possibility, which points to higher Japanese Government Bond (JGB) yields ahead. This week, overnight index swaps are pricing in a 70% chance of a 10-basis-point hike by April 2026. Shorting JGB futures is a direct way to express a view that yields will rise. For equities, a stronger yen often weighs on the export-heavy Nikkei 225. We saw this in the second half of 2025, when yen strength briefly cut about 5% from the index. Hedging long equity exposure with Nikkei puts or selling index futures could help protect portfolios in the weeks ahead. What makes this inflation reading different from the temporary spikes in 2024 and 2025 is wage growth. Early updates from this month’s “shunto” spring wage talks suggest average pay increases above 3.5%, the highest in decades. This points to more durable inflation and may give the BoJ the final evidence it has been waiting for.Volatility And Positioning
The main takeaway is that volatility may be returning to Japanese markets after years of being held down by BoJ policy. Options that benefit from larger price moves, such as straddles on major currency pairs and indices, could become more attractive. We will closely monitor BoJ official comments for any shift in tone, because their guidance now matters more than ever. Create your live VT Markets account and start trading now.Sterling-dollar challenges key averages as UK figures weaken, the Fed turns hawkish and Bank Rate holds after a close vote
The BoE kept rates at 3.75% in February after a 5–4 vote. Four members supported a 25-basis-point cut. UK data this week strengthened the case for easing and kept a March cut on the table.
Unemployment rose to 5.2%, and payrolls fell by 30K, according to Tuesday’s labour report. Wednesday’s CPI showed headline inflation falling to 3%. The Retail Price Index also cooled to 3.8%.
Bank Policy And Market Reaction
In the US, the FOMC minutes said growth was “solid” and warned that progress toward the 2% inflation goal may be “slower and more uneven.” Some members said rates could still rise if inflation heats up again. GBP/USD fell to around 1.3434, extending its drop from the late-January high of 1.3869. The pair moved below the 50-day EMA at 1.3520 and is now near the 200-day EMA around 1.3420. Support is near 1.3415 and 1.3344. Resistance is at 1.3526 and 1.3600. The Pound dates back to 886 AD and accounts for about 12% of FX trading, or roughly $630 billion a day (2022). GBP/USD makes up 11%, GBP/JPY 3%, and EUR/GBP 2%. A year ago, the Bank of England’s close 5–4 vote in February 2025 kept rates at 3.75% but signaled growing support for cuts. At the same time, the US FOMC took a more hawkish stance, worried that progress on inflation was slowing. This gap in policy direction helped shape the Pound’s path over the past year.Outlook Into March Meetings
That gap widened as expected. The Bank of England delivered two cuts in the second half of 2025, taking the bank rate down to 3.25%. The Federal Reserve, in contrast, kept its funds rate steady and signaled “higher for longer.” This increased the rate advantage of the US dollar over the pound and has been a major driver of Cable’s performance. As of February 20, 2026, the case for more BoE easing is less clear. GDP data for Q4 2025 showed a flat economy. But the latest CPI reading for January 2026 showed inflation ticking back up to 2.8%. This firmer inflation puts the BoE in a tougher spot and adds uncertainty for traders. In the US, the story is still a strong economy. The early-February jobs report showed payrolls rising by 195,000. Core PCE, the Fed’s preferred inflation measure, came in at 2.7% last month. That is slow but steady progress toward the Fed’s target, which supports a patient stance and helps keep the dollar relatively strong. With weak UK growth and the US still offering higher yields, traders may want to treat GBP/USD rebounds as chances to sell. We see the bias as lower for Cable going into the March central bank meetings. Strategies that benefit from downside moves or range trading may be more suitable. For the next few weeks, we prefer buying GBP/USD put options with strikes below 1.2400 to keep risk defined. Implied volatility has been moderate, which makes options pricing more attractive ahead of key data. This approach aims to capture a drop toward the 2024 lows without the open-ended risk of shorting spot. Create your live VT Markets account and start trading now.After the RBNZ holds the OCR at 2.25% and delays its hike forecast, the kiwi keeps NZD/USD below 0.6000
The RBNZ kept the OCR at 2.25% on Wednesday. Its updated rate track suggests the first possible hike could come in late 2026. The bank sees the OCR reaching 3% by 2028.
CPI inflation is 3.1%, which is above the RBNZ’s 1% to 3% target band. The Governor said inflation should return to 2% without any urgent policy action.
Central Banks Signal Diverging Paths
The Fed held rates at 3.50% to 3.75% in January. FOMC minutes noted that disinflation may be “slower and more uneven” than expected. NZD/USD fell to 0.5945 on Thursday, dropping below 0.6000 for the first time in more than two weeks. The pair is still above the 50-day EMA at 0.5905 and the 200-day EMA at 0.5875, after bouncing from lows near 0.5711. The drop from the 0.6094 year-to-date high broke the late-January trading range. The Stochastic Oscillator has turned down from around the midpoint. Support is near 0.5909 and 0.5856. Resistance is at 0.6000, then 0.6050 and 0.6094.Strategy And Key Levels Ahead
Key events ahead include New Zealand’s January trade balance, a later speech from the Governor, and US Q4 GDP and core PCE on Friday. The Reserve Bank of New Zealand has recently shifted to a more dovish tone. This sets a clearer near-term direction. With the Federal Reserve still sounding hawkish, the widening policy gap supports selling NZD/USD on rallies. Overall, the fundamentals point to a lower exchange rate in the coming weeks. That view was strengthened by US core PCE data for January, which was hotter than expected at 0.5% month over month. In contrast, New Zealand’s latest trade figures showed a larger-than-expected deficit of NZ$1.2 billion, driven by weaker dairy exports. The latest data from the two countries is moving in opposite directions. After the clear break below 0.6000, NZD/USD put options look worth considering. Strike prices near the 50-day moving average around 0.5900, with March or April expiry, may be attractive. This approach targets further downside while limiting potential losses. The technical setup also supports bearish momentum, with the Stochastic Oscillator pointing lower. In addition, China’s Caixin Manufacturing PMI slipped to 49.8, which signals a mild contraction. This could weaken New Zealand’s export outlook and adds another headwind to the NZD. A similar policy divergence in mid-2025 pushed the pair more than 400 pips lower. The current break below 0.6000 may be the start of another sustained move. The next major support level to watch is the 200-day moving average, now near 0.5875. Create your live VT Markets account and start trading now.AUD/USD holds above 0.7000 as RBA hawkishness supports the Aussie despite ongoing US dollar strength
The RBA lifted rates in February to 3.85%, its first increase in more than two years. The meeting minutes highlighted risks from high inflation and left the door open for further tightening. January jobs data also surprised on the strong side: unemployment held at 4.1% (vs 4.2% expected), and the number of unemployed fell for a fourth straight month.
US FOMC minutes warned that disinflation could be “slower and more uneven” than expected, and some members did not rule out further rate hikes. Markets now price a 94% chance the Fed holds in March, with US Q4 GDP and core PCE due on Friday.
Technical Picture For Aud Usd
AUD/USD traded near 0.7050 on Thursday after hitting a year-to-date high of 0.7147 in early February. It is still above the 50-day EMA at 0.6865 and the 200-day EMA at 0.6625, extending the uptrend from January lows near 0.6664. Price has been moving sideways in a 0.7000 to 0.7100 range, with 0.7000 acting as support. The Stochastic Oscillator has turned down from overbought levels toward neutral. Doji and small candles near 0.7050 also suggest uncertainty ahead of Friday’s US data. Resistance sits at 0.7147, then 0.7200 if that breaks. Support is at 0.7000, then 0.6900 and 0.6865. Looking back to early 2025, markets were stuck in a tug-of-war as both the RBA and the US Federal Reserve signaled a tough stance on inflation. At the time, the Australian dollar was consolidating below the key 0.7147 resistance level. That tight range showed uncertainty about which central bank would stay more aggressive. The RBA’s concerns from last year have proven justified. Australian inflation has remained sticky, with the latest quarterly CPI at 3.6%. In response, the RBA has kept the cash rate at 4.35%. A strong labour market also reduces the pressure to cut soon, with unemployment at 3.9% (Australian Bureau of Statistics). This resilience continues to support the Australian dollar.Policy Divergence And Trading Implications
By contrast, the Fed’s worries about “uneven” disinflation have eased. The US Core PCE Price Index has fallen to a more manageable 2.6% year-over-year. This has shifted expectations, with federal funds futures now pricing more than a 70% chance of at least one rate cut by the third quarter. This policy split has become a key driver in FX markets. The widening gap between a firm RBA and a softening Fed has helped AUD/USD break decisively above the 0.7147 resistance that capped the market in early 2025. Implied volatility in AUD/USD options has also risen from last year’s lows, showing that traders expect larger moves as this central-bank divergence plays out. Over the next few weeks, we expect traders to position for further AUD strength against the USD. One way to express this view is by buying AUD/USD call options with strike prices around 0.7400. This can capture further upside while keeping risk defined, especially if the Fed turns even more dovish. The main risk is stronger-than-expected US data, which could delay Fed rate cuts. Traders should watch US employment and inflation closely. Put options with strike prices below the old 0.7200 resistance (now support) can be a relatively low-cost hedge against a sudden reversal. Create your live VT Markets account and start trading now.Mary Daly says the Federal Reserve’s policy is well positioned, expressing confidence in current monetary settings and direction
San Francisco Federal Reserve President Mary Daly said on Thursday that US monetary policy is in a good place.
She said the labor market is in a stronger position after 75 basis points of rate cuts.
Monetary Policy Outlook
Daly said inflation is still easing, except in the goods sector. At the time of writing, the US Dollar Index (DXY) was near 97.83, up 0.10% on the day. Looking back at 2025, officials said monetary policy was in a good place. The labor market had stabilized after 75 basis points of rate cuts, and it looked like the economy achieved a soft landing. That view helped support risk assets through much of last year. But the picture has changed as of February 20, 2026. January’s CPI report showed core inflation rising again to 2.9% year-over-year, led by higher services costs. This challenges the earlier view that inflation was steadily falling outside the goods sector.Market Implications For Traders
The labor market is also tighter than it was in 2025. The latest jobs report showed 260,000 new positions, and the unemployment rate fell to 3.5%. This strength is pushing wages higher and makes the Federal Reserve’s next steps harder. Markets have repriced sharply because of this. Fed funds futures, which previously pointed to more rate cuts, now suggest the Fed may hold rates steady through 2026. A rate hike before year-end is still unlikely, but it is now part of the conversation. For traders, this suggests volatility may be underpriced. The VIX, near 17, may not fully reflect the rising uncertainty. That could make long-volatility option trades more appealing. Consider VIX calls or straddles on major equity indices. The US Dollar Index (DXY), which traded near 97.8 last year, is now holding around 105.2. With yield differentials still supportive, dips in the dollar may offer buying opportunities. Traders can use currency futures or options to position for continued dollar strength versus currencies backed by more dovish central banks. Create your live VT Markets account and start trading now.AUD/JPY hovers near 109.00 as Australia raises rates to 3.85%, widening the gap with Japan’s policy stance
AUD/JPY traded near 109.00 as policy paths in Australia and Japan moved further apart. Australia’s January unemployment rate held at 4.1% (vs 4.2% expected). Job gains were 17.8K, below the 20K forecast.
Earlier this month, the RBA raised the cash rate by 25 basis points to 3.85%, its first increase in more than two years. The minutes kept a data-dependent tone and suggested inflation could rise again in the second half of 2025.
Policy Divergence Driving Audjpy
The BoJ kept its policy rate at 0.75% in January. Markets now price roughly an 80% chance of a BoJ hike by April. US Q4 GDP and core PCE are due on Friday. On the chart, the pair stayed above the 50-day EMA at 106.60 and the 200-day EMA at 100.45 after rallying from about 104.72 in early January. It peaked at 110.79 in early February and has traded between about 109.00 and 110.00 for the past two weeks. Support sits near 108.00. If 110.79 breaks, the next upside target is around 112.00. Key AUD drivers include interest rates, iron ore, China, inflation, growth, the trade balance, and overall risk appetite. Based on 2021 data, iron ore exports were about $118 billion per year. The main driver of the Australian dollar versus the yen is the widening gap between the two central banks. The RBA still looks hawkish as it responds to the inflation surge seen in the second half of 2025. That gap makes the higher-yielding Australian dollar more attractive than the Japanese yen.Key Risks And Trade Conditions
The hawkish RBA view is backed by a strong local economy, especially a tight labor market. With unemployment steady at 4.1%, markets may expect the RBA to raise rates again. High iron ore prices, Australia’s top export, also support the currency. By contrast, the BoJ is moving more slowly toward normal policy settings. Even if the BoJ hikes by April, the pace looks gradual, so the rate gap with Australia may stay wide for a while. The key issue to watch is sustained wage growth in Japan, which could push the BoJ to act more firmly. China’s outlook remains crucial for the AUD. Recent data has improved. China’s latest January manufacturing PMI showed modest expansion. If China stabilizes, it can support demand for Australian exports and improve the outlook for the AUD. From a trading angle, with AUD/JPY consolidating near 109.00, options may fit this setup. Selling put spreads or cash-secured puts with strikes below support at 108.00 can generate premium while positioning for the idea that the fundamentals will limit a deeper drop. This can work if the pair trades sideways or grinds higher in the weeks ahead. External shocks are still a risk. Major US inflation data, including the upcoming core PCE report, could trigger a risk-off turn. That would likely boost demand for the safe-haven yen and pressure AUD/JPY, even if the pair’s fundamentals remain supportive. Create your live VT Markets account and start trading now.S&P Global reports Australia’s preliminary February manufacturing PMI fell to 51.5 from 52.3
Australia’s preliminary S&P Global Manufacturing PMI came in at 51.5 in February, down from 52.3, according to data released Friday.
The S&P Global Services PMI fell to 52.2 in February from 56.3. The Composite PMI eased to 52.0 from 55.7.
