The below key drivers are likely to impact investor risk sentiment and FX markets in February:
- Signals from major central banks, including guidance on holding, raising, or eventually lowering interest rates, are shaping relative currency strength.
- Persistent or easing inflation is influencing policy direction and market expectations across the US, Europe, UK, Australia, and Asia.
EUR | Euro
The euro has stayed steady against the pound, with markets watching ECB signals closely. Inflation and geopolitical risks keep policy cautious, so markets are watching closely for ECB updates.
Over the past few weeks, the euro has exhibited relative resilience against GBP, with the EURGBP cross holding in a consolidative range and stabilising around trend levels. Markets are focused on European Central Bank (ECB) communication. ECB Governing Council members have largely struck a cautious, data-dependent tone, underscoring downside risks to inflation while affirming that recent inflation metrics sit near target. ECB President Christine Lagarde noted that ongoing geopolitical risks continue to complicate the outlook, and that a stronger euro could act as a modest disinflationary force, a subtle reminder that foreign exchange (FX) dynamics increasingly factor into policy deliberations.
ECB officials have resisted overt signalling toward imminent tightening or easing, keeping markets attentive to releases such as Eurozone sentiment surveys and German production figures. A slight cooling in inflation has preserved the case for policy stability, but the backdrop remains asymmetric. Soft growth data could increasingly weigh on the single currency should downside risks materialise. Recent positioning suggests a balanced near-term outlook, with ECB guidance likely to be the key driver steering EUR performance relative to GBP and other majors.
Expected ranges:
- EURUSD 1.1766–1.1975
- EURGBP 0.86125–0.87416
GBP | Sterling
The GBP has been swinging against the euro as markets watch the Bank of England. Cautious policy and mixed UK growth means future moves are likely dependent on inflation and BoE signals.
In recent weeks, the pound has experienced mixed performance against the euro, with the GBPEUR rate exhibiting notable ebb and flow around central bank expectations and UK macro trends. Market participants have been digesting Bank of England (BoE) commentary, which increasingly reflects a nuanced policy stance as the BoE navigates persistent inflation near target alongside signs of economic deceleration. Recent remarks from policymakers point to a cautious approach to further easing, even as rate cut expectations had previously underpinned some weakness.
Specifically, the BoE’s decision to hold rates, and its emphasis on careful calibration, has lent episodic support to Sterling, particularly when contrasted with earlier strong market bets on aggressive cuts. However, analysts caution that optimism around UK growth and fiscal resilience may be premature; some forecasts argue that Sterling’s recent gains outpace structural fundamentals, notably in productivity and growth differentials with the euro area.
Looking ahead, BoE communications and UK inflation data will be central. If the BoE continues to signal patience and emphasise inflation trends rather than immediate easing, Sterling could secure support versus the euro. Conversely, tangible signs of weaker activity may underpin renewed downside positioning for the pound.
Expected ranges:
- GBPUSD 1.3509–1.3814
- GBPEUR 1.1440–1.1611
AUD | Australian dollar
The Australian dollar surged against the US dollar, boosted by persistent inflation and a rate hike from the RBA, highlighting stronger economic confidence and renewed appetite for riskier currencies.
Throughout January and into February, the Australian dollar delivered a strong performance against the US dollar. The AUD started January trading in the mid-0.66 range and gradually pushed higher as the month progressed, spending much of the month in the high-0.60s. By late January, it briefly approached the 0.70 level, marking one of its strongest points in recent months. This upward trend highlighted renewed investor appetite for risk-sensitive currencies and a relative softening in the US dollar, particularly as markets reassessed the outlook for US interest rates.
A key driver behind the Australian dollar’s strength was the release of Australia’s latest inflation data. The December quarter CPI showed annual inflation running at around 3.8%, remaining above the Reserve Bank of Australia’s (RBA) 2–3% target band. Importantly, underlying measures of inflation also stayed elevated, suggesting that price pressures were proving more persistent than previously hoped.
In early February, the Reserve Bank of Australia announced a 25-basis-point increase in the official cash rate, lifting it to 3.85%. In its statement, the RBA pointed to ongoing inflation risks and a still-tight labour market, making it clear that bringing inflation back to target remained a central priority. This decision marked a notable shift in tone and signalled that the RBA was prepared to act decisively if inflation pressures persisted. For currency markets, the rate hike provided further support to the Australian dollar by widening the interest rate differential relative to the US and reinforcing confidence in Australia’s economic resilience.
Expected ranges:
- AUDUSD 0.6897–0.7099
- AUDEUR 0.5919–0.5965
- AUDGBP 0.5062–0.51913
- AUDNZD 1.1512–1.1743
NZD New Zealand dollar
The New Zealand dollar strengthened against the US dollar, supported by firm inflation, delayed rate cuts, and a softer US dollar, reflecting confidence in both domestic fundamentals and global markets.
The New Zealand dollar recorded a solid appreciation against the US dollar in January, reflecting both supportive domestic data and broader US dollar softness. The NZD began January trading in the mid-0.57 range and gradually gained momentum as the month progressed. Early moves were modest, but the upward trend became more pronounced in the second half of the month, with the currency pushing through the US$0.59 level before climbing above US$0.60 toward the end of January. By late January, the NZD reached its strongest levels in several months, briefly trading around the US$0.606–US$0.608 area, and finished January meaningfully higher than where it started.
A key factor underpinning the New Zealand dollar’s strength was the release of higher-than-expected domestic inflation data. New Zealand’s latest CPI figures showed annual inflation accelerating to around 3.1% in the December quarter, remaining above the Reserve Bank of New Zealand’s target band. This outcome surprised markets that had been expecting a clearer cooling in price pressures and led investors to reassess the outlook for monetary policy. Expectations for near-term interest rate cuts were pared back, lending support to the NZD as yield differentials became more favourable relative to the US dollar.
Global factors also played an important role. The US dollar softened broadly through January as markets grew more confident that US interest rates were approaching their peak and as risk appetite improved across global markets. This environment tended to benefit higher-beta currencies such as the New Zealand dollar, particularly those backed by relatively firm economic fundamentals. Overall, January proved to be a constructive month for the NZD, with the currency’s steady appreciation reflecting a combination of resilient domestic inflation, shifting monetary policy expectations, and a more supportive global backdrop.
Expected ranges:
- NZDUSD 0.5928–0.6081
- NZDEUR 0.5037–0.5128
- NZDGBP 0.4383–0.4436
- NZDAUD 0.8589–0.8688
USD | United States dollar
The US dollar remains steady, backed by strong activity and Fed patience. Global uncertainty and attractive yields keep demand high, with its path shaped by policy and risk sentiment.
The US dollar has remained broadly supported through January and early February, underpinned by resilient US activity and steady Federal Reserve (Fed) communication. Fed officials have maintained a measured tone, emphasising that policy decisions will be guided by sustained progress on inflation rather than short term fluctuations. While markets continue to debate the timing and scale of eventual rate cuts, the overarching message from policymakers has been one of patience and discipline.
The US dollar has also benefited from its role as a liquidity anchor during episodes of global uncertainty, particularly as geopolitical risks and uneven global growth prospects persist. Importantly, US yield differentials remain comparatively attractive, reinforcing structural demand for USD assets even as volatility across asset classes ebbs and flows.
Looking ahead, attention will centre on how confidently the Fed believes inflation is converging toward target, without a material deterioration in labour market conditions. Any future change in guidance, especially regarding the pace of future easing, could reshape rate expectations and capital allocation trends. For now, the US dollar’s trajectory appears more closely tied to relative policy divergence and global risk appetite than to any single data release.
Expected ranges:
- DXY 96.320–97.986
JPY | Japanese yen
The yen traded with heightened volatility in January, driven early by sharp swings and renewed sensitivity to Japan’s policy and intervention risk.
In January, USDJPY climbed to around 159.23 after the Bank of Japan (BoJ) left rates on hold, before reversing sharply down to about 156.40 on unconfirmed “rate-check”/intervention chatter and broad US dollar softness. The move highlighted how quickly positioning can unwind when markets sense Japanese officials are monitoring FX conditions closely, even without confirmed action.
The policy backdrop remained cautiously supportive. The BoJ had previously lifted rates to 0.75%, and January trading reflected ongoing expectations that further normalisation is possible if inflation momentum holds and wage gains continue to broaden, though near-term yen performance continues to be shaped more by fiscal, political, and intervention dynamics.
Tokyo inflation sent mixed signals. Tokyo core CPI (ex-fresh food) rose 2.0% y/y in January (vs 2.2% forecast), slowing to a 15-month low due largely to the base effect from last year’s food-price spike and the impact of gasoline subsidies. However, the more demand-sensitive gauge excluding fresh food and fuel stayed firm at 2.4% y/y, remaining above the BoJ’s 2% target and reinforcing the view that underlying inflation is still consistent with durable progress toward the price goal.
Attention is now shifting to April’s fiscal-year reset, when corporate price-setting is reassessed. Should a weak yen continue to lift import costs and prompt renewed price pass-through, the BoJ could face stronger justification to tighten further, potentially offering support to the yen on pullbacks even as headline inflation temporarily softens.
Expected ranges:
- USDJPY 152.87–157.76
CAD | Canadian dollar
The Canadian dollar has been steady but sensitive, guided by Bank of Canada caution, oil prices, and global risk. Future moves will likely hinge on policy shifts and market confidence.
The Canadian dollar showed modest volatility against the US dollar throughout January, responding to both risk sentiment and Bank of Canada (BoC) communication. Periods of softer oil prices and intermittent risk aversion have weighed on the CAD, although declines have been measured rather than disorderly.
BoC Governor Tiff Macklem has reiterated that while inflation has eased materially from prior peaks, the Bank remains cautious about declaring victory too early. Policymakers have stressed that underlying price pressures and wage dynamics still warrant a disciplined approach, even as growth shows signs of moderation.
Markets have interpreted recent commentary as signalling that the tightening cycle is complete, but that the threshold for rate cuts remains relatively high. This has helped anchor Canadian yields and prevent a sharper repricing in the currency. Looking ahead, the focus will remain on how confidently the BoC can transition from restrictive policy toward eventual easing without unsettling inflation expectations. In that context, the Canadian dollar is likely to remain sensitive to oil market stability, cross border capital flows, and relative rate expectations versus the Federal Reserve, rather than purely domestic data surprises.
Expected ranges:
- CADUSD 0.7286–0.7417
SGD | Singapore dollar
USDSGD fell to an 11-year low in January, driven by Singapore’s strong economy, MAS signals, and US uncertainty. The pair may now stabilize as markets reassess positioning and policy.
January saw sharp volatility in USDSGD, with the pair plunging to an 11-year low of 1.2584 on January 28. The decline reflected a mix of the MAS signaling a tighter exchange rate policy to allow for a stronger Singapore Dollar, ongoing US policy uncertainty, and broader speculative market activity. Earlier in the month, USDSGD had already trended lower toward 1.27 handle as rotation out of the US dollar amid de-dollarisation concerns weighed on the USD. While the Federal Reserve’s leadership tilt toward higher interest rates helped to steady the USD at month-end, Singapore’s solid economy and continued global AI investment supported the SGD’s strength.
The Monetary Authority of Singapore (MAS) left the S$NEER slope unchanged but revised its 2026 core inflation forecast higher to 1% to 2%, reinforcing a tighter for longer stance. Advance estimates showed Singapore’s economy expanded 4.8% in 2025, with Q4 growth at 5.7% y/y. December 2025 core and headline inflation both came in at 1.2% y/y, highlighting contained price pressures even as MAS expects gradual firming ahead.
Looking into February, USDSGD is expected to consolidate as recent bearish momentum fades and markets reassess positioning. A period of corrective recovery for the US dollar is possible in the near term, although gains may remain capped given MAS’ relatively firm policy bias. Price action will likely remain sensitive to incoming US labour and inflation data, Fed communication, and Singapore’s upcoming Budget announcement, all of which could influence the S$NEER’s position within its policy band.
Expected range:
- USDSGD 1.2650–1.2820
HKD | Hong Kong dollar
USDHKD edged higher in January, supported by carry trades and a strong US dollar, while Hong Kong’s solid economic growth and robust currency peg kept the market stable.
In January, USDHKD edged higher within its 7.75–7.85 peg range, supported by carry trade activity as HKD funding remained relatively inexpensive and overall demand for the currency was moderate. While Hong Kong’s official rates were slightly above US levels, ample local liquidity allowed the pair to drift toward the upper end of the band. Strength in the US dollar, underpinned by stabilising economic data, further contributed to the move. The increase reflected typical peg dynamics, with interbank funding conditions, market flows, and USD sentiment driving the currency’s performance.
Hong Kong’s economy showed strong momentum, with Q4 2025 GDP up 3.8% y/y, bringing full-year growth to 3.5% — the fastest annual expansion since 2021. Growth was underpinned by record merchandise exports of HK$5.24 trillion and a solid rebound in inbound tourism. The HKMA kept its Base Rate at 4.00%, in line with the Federal Reserve’s January 28 policy decision, while the Exchange Fund reported HK$331 billion in investment income for 2025, providing a robust buffer for the currency peg amid global trade uncertainties.
Looking ahead, USDHKD is expected to remain within a broad trading range, with carry trade flows continuing to favour the US dollar. Seasonal funding demand linked to Lunar New Year and the upcoming 2026–27 Budget may provide intermittent support for the HKD. Signs of US inflation easing or a strong local equity rally could see the pair retreat toward the lower end of the range.
Expected range:
- USDHKD 7.78–7.83
2026 FX strengths: what analysts expect. Read the article.
IMPORTANT: The contents of this blog do not constitute financial advice and are provided for general information purposes only without taking into account the investment objectives, financial situation and particular needs of any particular person. OzForex Limited (trading as “OFX”) and its affiliates make no recommendation as to the merits of any financial strategy or product referred to in the blog. OFX makes no warranty, express or implied, concerning the suitability, completeness, quality or exactness of the information and models provided in this blog.
