BBH’s Elias Haddad expects the RBNZ to hold rates at 2.25% and signal earlier hikes, supporting the NZD
The Reserve Bank of New Zealand (RBNZ) is expected to keep the Official Cash Rate (OCR) unchanged at 2.25% while updating its OCR track. The main focus is the new forecast, not the rate decision.
In November, the RBNZ forecast the OCR would stay around 2.25% through 2026. It also projected almost 50bps of rate increases in 2027.
With key US data in focus, the dollar trades rangebound against the yen near 153.00
USD/JPY traded in a familiar range on Tuesday, holding near 153.00. It was rejected from 153.70 during Asia trade, found support near 152.70 (around 100 pips lower), and then moved back toward 153.00.
Overall FX markets were mostly flat, with light volumes early in the week. Trading in Asia was quieter due to Lunar New Year holidays, and U.S. activity followed a long weekend.
Yen Reaction To Japan Gdp
The Yen softened on Monday after Japan released preliminary Q4 GDP data. The economy grew 0.1% quarter-on-quarter after a 0.7% drop in Q3, missing the 0.4% forecast. Year-on-year growth was 0.2%, well below the 1.6% expected. Even after the release, USD/JPY still failed to break above 153.70. Focus then shifted to upcoming U.S. data, including Tuesday’s New York Empire State Manufacturing Index. Markets are also watching the Federal Reserve meeting minutes on Wednesday. Traders will also be looking ahead to U.S. Q4 GDP and the Personal Consumption Expenditures (PCE) Price Index due next Friday. The Yen is influenced by Japan’s economic performance, Bank of Japan policy, yield gaps versus the U.S., and overall risk sentiment. The BoJ’s very loose policy from 2013 to 2024 weakened the Yen, while its gradual policy unwind in 2024 has provided some support.Strategy Implications For Usd Jpy
We remember USD/JPY struggling to find direction around 153.00 in early 2025, when Japanese data was weak. Now things look very different. The pair is consolidating near 135.00 after the Bank of Japan’s major policy shifts over the past year. This setup calls for a different approach in the weeks ahead. The biggest change has been a narrowing in policy divergence. The Bank of Japan has delivered three rate hikes, lifting its main policy rate to 0.25%, a clear break from the ultra-loose era. At the same time, the U.S. Federal Reserve has started easing, with two cuts taking the Fed Funds rate to 4.00% as of last month. This convergence has tightened the spread between U.S. and Japanese 10-year bond yields. The gap is now about 300 basis points, down from more than 400 a year ago. While Japan’s Q4 2024 GDP rose only 0.1%, the recovery looks firmer now. Q4 2025 GDP has increased by a healthier 0.5% quarter-on-quarter, supporting the case for a stronger Yen. For derivatives traders, the trend still points to further downside in USD/JPY. Selling call options, or using bear call spreads with strikes above 138.00, may be a sensible way to earn premium while positioning for limited upside. This approach fits a market that expects rallies to fade. Stay alert to incoming data, especially the next U.S. PCE Price Index. An upside inflation surprise could slow the Fed’s rate cuts and trigger a short-term jump in USD/JPY. For that reason, disciplined risk management on short positions matters in the weeks ahead. Create your live VT Markets account and start trading now.EUR/JPY slips to 181.23 amid BoJ rate-hike speculation and Eurozone sentiment worries, down 0.40%
EUR/JPY traded near 181.23 on Tuesday, down 0.40% after two days of gains. The pair fell as the yen strengthened amid expectations that the Bank of Japan (BoJ) could raise rates sooner than previously thought.
Former BoJ board member Seiji Adachi said a rate hike could come as early as April if the data allow. BoJ Governor Kazuo Ueda said his talks with Prime Minister Sanae Takaichi focused on the economy and did not include any specific requests on monetary policy.
Yen Strength And Bond Market Signals
A rally in Japanese Government Bonds supported the yen and lowered the fiscal risk premium tied to domestic policy concerns. Japan’s GDP rose 0.1% quarter-on-quarter in Q4 after a 0.7% drop in the prior quarter. Annualised growth was 0.2%. Both figures missed forecasts. The euro came under pressure after weaker confidence data. Germany’s ZEW Economic Sentiment Index fell to 58.3 in February from 59.6 in January, and the Eurozone index also declined. Germany’s HICP confirmed a 0.1% monthly decline in January, while the annual rate stayed at 2.1%. The ECB broadened access to its euro liquidity backstop for central banks worldwide. It said inflation was in a “good place,” but warned about short-term volatility. A year ago, EUR/JPY was trading around 181.23, weighed down by strong speculation that a BoJ rate hike was close. Today, with the cross much higher near 185.50, it is clear that the expected policy convergence did not happen as fast as the market expected in early 2025. This context matters when we build today’s derivatives strategies.Implications For Current Options Strategy
In February 2025, the story centered on a possible BoJ hike as early as April. That hike did happen, but it was not followed by the aggressive tightening cycle that some traders had priced in. Since then, the BoJ has stayed cautious. Japan’s core inflation for January 2026 was 1.9%, slightly below the BoJ’s 2% target. Compared with last year’s firmer tone, this suggests the hurdle for further hikes is now much higher. Meanwhile, the euro faced headwinds last year from weak sentiment, including the German ZEW drop to 58.3, which increased expectations for ECB rate cuts. However, the Eurozone economy held up better than expected. With services inflation staying above 3% through late 2025, the ECB has taken a more patient approach. The latest ZEW reading for February 2026 rose to 61.5, showing a clear improvement in investor confidence versus a year ago. The gap between last year’s expectations and today’s reality suggests implied volatility in EUR/JPY may be too low. The key lesson from 2025 is that central bank messaging can change quickly, triggering sharp moves. Traders may want to consider buying options—such as straddles or strangles—to position for a potential breakout as the market reassesses the still-uncertain paths of the BoJ and ECB. In addition, the interest rate spread—while smaller than at its peak—still favors the euro and provides positive carry. This backdrop can support strategies like bull call spreads, which aim to benefit from gradual upside in EUR/JPY while keeping risk defined. This is a more measured stance than the outright short positions many considered when the pair was near 181 a year ago. Create your live VT Markets account and start trading now.INGING’s Frantisek Taborsky expects Romania’s central bank to hold rates at 6.50% as inflation eases and leu flexibility increases gradually
ING expects the National Bank of Romania (NBR) to keep the policy rate at 6.50%. Inflation remains high and is still close to 10% after recent tax increases, although it is expected to ease from mid-year.
The NBR has kept rates unchanged since August 2024, after market volatility following the presidential election. This meeting will also bring an updated forecast and inflation report, alongside new GDP data tied to fiscal consolidation.
Policy Outlook And Near Term Expectations
ING expects the first rate cut in May, with total easing of 100bp in 2026. EUR/RON is expected to stay broadly stable in the 5.09–5.10 range. A small rise is forecast later in the year, with a year-end target of 5.150. In early 2025, the call that the NBR would begin cutting rates was right, although the first cut came in June rather than May. The EUR/RON stability forecast near 5.09 also held through the first half of the year, before the pair began a gradual climb. EUR/RON is now trading above the 5.15 end-2025 target and is currently near 5.18. The main change now is that disinflation has sped up. January 2026 CPI shows inflation at 4.8%, far below last year’s levels. This gives the NBR room to ease policy further from the current key rate of 5.50%. With Q4 2025 GDP growth at a weak 1.2% year-over-year, the case for larger rate cuts in the next few months looks strong. For derivatives traders, this points to continued RON weakness versus the euro. We see value in buying near-term EUR/RON call options, looking for a move toward 5.20–5.22 over the next one to two months. This approach offers exposure to the expected policy divergence while keeping risk limited and defined.Derivatives Positioning And Volatility Considerations
The NBR has often managed the exchange rate to limit sharp swings. However, weaker fundamentals may make it harder to resist the market trend. The 2024 post-election turmoil showed the NBR will prioritize stability, but we think it will still allow (and manage) a gradual weakening in the currency. As a result, implied volatility may be too low. For traders expecting a bigger move around the next NBR meeting, long-volatility strategies such as straddles could be worth considering. Create your live VT Markets account and start trading now.Ahead of the US market open, the Indian rupee holds steady near 90.80 against the dollar
The Indian Rupee traded flat near Monday’s low. USD/INR was around 90.80 on Tuesday afternoon in India. Importers’ demand for US Dollars pressured the Rupee. At the same time, fears of Reserve Bank of India (RBI) intervention limited the downside.
Foreign Institutional Investors (FIIs) were net sellers in February. They cut holdings by Rs. 2,345.69 crore. On Monday, FIIs sold Rs. 972.13 crore in shares.
Markets also watched a second round of US-Iran talks in Geneva. Traders focused on what the talks could mean for oil prices. Higher oil prices can hurt the Rupee because India imports most of its oil.
The US Dollar was steady ahead of the US market open after a long weekend. The US Dollar Index (DXY) was near 97.15.
Traders expected no Federal Reserve rate cut in March or April, based on the CME FedWatch tool. US inflation eased in January. Headline inflation was 2.4% year on year, and core inflation was 2.5%.
Key US releases this week include the FOMC minutes and preliminary Q4 GDP data. The Fed kept rates at 3.50%–3.75% in January.
USD/INR was near 90.9035, just above the 20-day EMA at 90.8822. The 14-day RSI was 51.19. Key levels were 90.00 on the downside and 91.25 on the upside.
USD/INR remains stuck in a familiar range, similar to what we saw around this time in 2025. Strong dollar demand from importers is supporting the pair. However, gains are limited by the ongoing risk of RBI intervention. India’s foreign exchange reserves hit a record $710 billion in January 2026, giving the RBI plenty of room to curb any sharp Rupee weakness.
The Rupee outlook looks better than last year, when FIIs were net sellers. In the last quarter of 2025, flows flipped. FIIs became net buyers and put more than $5 billion into Indian stocks. This renewed foreign demand supports the INR.
Oil remains important, but the situation is calmer than during the US-Iran talks in 2025. Brent crude has traded in a tight $85–$90 per barrel range. That reduces the risk of a sudden jump in import costs that could pressure the Rupee. More stable energy prices also help reduce currency volatility.
On the US side, conditions have changed since early 2025, when the Fed was holding rates steady. The Fed funds rate is now higher, at 4.25%–4.50%. Even so, markets expect a pause. CME FedWatch shows less than a 20% chance of another hike in March. With no clear signal from the Fed, USD/INR is more likely to stay range-bound.
For derivatives traders, these forces point to continued consolidation in the coming weeks. One-month implied volatility for USD/INR has fallen to a multi-year low of 3.8%. That makes volatility-selling strategies, such as a short strangle, look more attractive. We can consider this approach to benefit from a market that is likely to stay calm.
During European trading, GBP/USD recovered half of its earlier losses but remained 0.23% lower near 1.3600
GBP/USD recovered about half of its early losses during European trade on Tuesday. Still, it was down 0.23% near 1.3600. The move followed weaker UK labour market data for the three months to December.
The UK ILO Unemployment Rate rose to 5.2%, the highest in five years, compared with forecasts of 5.1%. Job creation came in at 52K, down from 82K previously.
Uk Labour Market Signals Grow Worse
Average Earnings Excluding Bonuses eased to 4.2% YoY. This matched expectations and was down from 4.4% (revised from 4.5%). Average Earnings Including Bonuses fell to 4.2% from 4.6% in the three months to November. Focus now shifts to the UK January CPI release on Wednesday. The US Dollar traded mostly steady ahead of the US market open after a long weekend. GBP/USD was around 1.3594, below the 20-period EMA at 1.3624. The 14-period RSI was 42, below 50. Resistance is seen near 1.3652. A descending trend line from 1.3907 also limits gains. Support sits near 1.3596, based on a rising trend line from 1.3366. If price closes below support, 1.3500 is the next level to watch.Macro Divergence And Options Positioning
In early 2025, GBP/USD came under pressure near 1.3600 as the UK job market weakened. Unemployment reached a five-year high of 5.2%. This was an early sign of the economic strain that followed, and it showed how sensitive the pound was to signs of slower growth. Those concerns have since played out. Data for January 2026 shows unemployment has edged up to 5.4%. Wage growth is also still running below inflation, which remains sticky at 3.1%. This leaves the Bank of England in a tough spot. It cannot easily cut rates to support growth while inflation stays above its 2% target. The US picture looks stronger. The latest non-farm payrolls report showed job growth of 210,000. This supports the case for the Federal Reserve to keep rates steady. This policy gap continues to support the US dollar over the pound. Overall, the fundamentals still point to further downside in GBP/USD. Based on this view, traders may consider buying GBP/USD put options to position for a decline in the coming weeks. Put options offer defined risk and can target a move toward the 1.2250 support area. This matters because the pair is now around 1.2410, well below the levels seen when these risks first appeared a year ago. At the same time, the Bank of England faces competing goals: reducing inflation while avoiding a deep recession. This mix can lift volatility. One possible approach is to buy straddles ahead of major UK data releases or the next Bank of England meeting. A straddle can benefit from a large move in either direction, which may suit the current uncertainty. Create your live VT Markets account and start trading now.South Africa’s unemployment rate fell to 31.4% in Q4 from 31.9% in the previous quarter
South Africa’s unemployment rate fell to 31.4% in the fourth quarter. This was down from 31.9% in the previous quarter.
The latest figures show South Africa’s unemployment rate dropped to 31.4% in the fourth quarter of 2025. This is a positive sign for the local economy. A stronger job market can support higher consumer spending. It also puts the South African Reserve Bank’s (SARB) next decision in focus, since stronger growth can keep inflation pressures in place.
Implications For Monetary Policy
We see this as supportive for the rand (ZAR). The currency has been trading near 18.85 against the US dollar, weighed down by worries about global growth. With inflation at 5.4% in January 2026—still above the SARB’s 4.5% target—this jobs report makes near-term rate cuts less likely. Traders may consider buying ZAR call options or taking short USD/ZAR futures positions, targeting a move toward 18.50. The data also affects interest rate expectations. It suggests the SARB is less likely to ease policy before the second half of the year. Markets may start pricing in a more hawkish stance for longer. Forward rate agreements can be used to position for short-term rates staying firm through the next policy meetings. For equities, stronger employment is generally positive for consumer-focused stocks on the JSE. It may also support the FTSE/JSE All-Share Index, which has lagged other emerging markets so far this year. We see call options on the Top 40 index (ALSI) as one way to gain exposure to a potential domestic rebound. Still, similar good local news in mid-2025 was quickly overtaken by weaker global commodity prices and shifts in US interest rate policy. So while this release is encouraging, the ZAR and local assets remain sensitive to global conditions. Any long ZAR or JSE positions should account for volatility, for example by using option spreads to cap risk.Risk Management Considerations
Create your live VT Markets account and start trading now.BBH’s Elias Haddad expects January inflation to ease, keeping Canadian rates at 2.25% and Q1 price growth near target
BBH’s markets strategy team expects Canadian inflation to cool in January. They also expect the Bank of Canada to keep its policy rate unchanged at 2.25% for a while. In BBH’s projections, inflation is close to the target in Q1.
Headline inflation is forecast at 2.4% year over year for a second straight month. Core inflation (the average of trimmed and median CPI) is expected at 2.55% year over year, down slightly from 2.6% in December.
In foreign exchange, USD/CAD is expected to trade in a 1.3500 to 1.3800 range in the near term. The article says it was produced using an artificial intelligence tool and reviewed by an editor.
Looking back to the start of 2025, easing inflation puts the Bank of Canada in a good position to keep rates on hold. Last January’s data showed headline inflation fell to 2.9%, down sharply from 3.4% at the end of 2024. This supports the case for the Bank to keep its rate steady at 5.0% for some time.
If the central bank stays steady, USD/CAD may also stay in a tight range in the near term. We expect the pair to trade mostly between 1.3500 and 1.3800, a range it followed for much of January 2025. As a result, implied volatility on USD/CAD options should stay low. That makes it costly to bet on big price moves.
For traders, this kind of market can suit strategies that benefit from low volatility and time decay. One approach is to sell an out-of-the-money strangle, such as puts near 1.3450 and calls near 1.3850, to collect premium. The aim is for both options to expire worthless if the pair stays in range.
If you want more defined risk, you could use an iron condor around the same levels. This strategy also benefits from limited price movement and earns income from option premium. It creates a profit zone inside the expected 1.3500–1.3800 channel while capping potential losses.
During European trading, AI-related risk aversion nudges US index futures slightly lower overall
Dow Jones futures slipped 0.03% to around 49,550 during European trading on Tuesday. S&P 500 and Nasdaq 100 futures fell 0.16% and 0.48%, to about 6,850 and 24,700.
US index futures edged lower as risk appetite weakened, extending last week’s decline tied to worries about AI-driven disruption. Software stocks led the drop, while semiconductor shares held up better on hopes that demand for high-performance computing and advanced chips will stay strong.
Fed Minutes In Focus
Markets remained cautious ahead of the Federal Open Market Committee meeting minutes due on Wednesday. Softer January US Consumer Price Index data and a steady labour market kept expectations for rate cuts later this year intact. The CME Group’s FedWatch tool shows a 52.7% chance of a 25-basis-point cut in June and 42.7% in July. Traders are also watching earnings later this week from Walmart, Warner Bros. Discovery, and Booking Holdings. Key data due on Friday include Q4 annualised Gross Domestic Product and the core Personal Consumption Expenditures price index. These reports may shape expectations for the Fed’s next moves. With futures pulling back, the week is starting on a cautious note. One approach is to consider protective put options on broad indices like the SPX or QQQ to hedge against further downside. A simple idea is to buy near-term puts to benefit from short-term fear ahead of major economic releases.Options Strategies To Consider
The gap between software and semiconductor stocks is creating a potential pairs-trade setup. This pattern built through 2025, with semiconductor ETFs consistently beating software-focused funds by a wide margin. One way to express this view is to buy call options on a semiconductor index while also buying put options on a software index, aiming to capture continued divergence. Uncertainty about the Fed’s next step is lifting short-term volatility. The VIX has recently moved above 15. With the market split between a June and July cut, option premiums on index ETFs are higher than usual. If you expect prices to stay in a range after the FOMC minutes, selling premium could make sense—for example, using an iron condor on the SPY. Upcoming earnings from names like Walmart also create event-driven opportunities. Historically, Walmart can move about 4–5% after earnings, so a straddle could be a way to trade that expected volatility in either direction. Friday’s core PCE data will also be important, since a surprise reading could quickly change the current rate-cut odds. Create your live VT Markets account and start trading now.Italy’s EU trade deficit widens to €2.447B, down from €1.959B previously
Italy’s trade balance with the EU posted a deficit of €-2.447B in December. This was worse than the prior period’s deficit of €-1.959B.
The figure measures the difference between exports and imports with EU partners. The December reading shows Italy imported more than it exported, and the gap widened versus the previous report.
