FX Daily: Dollar's Struggles Continue
The US jobs market delivered a strong performance yesterday, with a hawkish Fed response, but the dollar's gains were modest. This outcome suggests a persistent bearish sentiment towards the greenback, which can only be reversed by more positive economic data. We anticipate some stability in USD cross-rates today.
Authors
USD: Payroll Data Falls Short
Yesterday's payroll report offered a mixed bag for the dollar (https://think.ing.com/articles/decent-january-for-us-jobs-but-the-sector-concentration-is-a-huge-concern/). While job numbers were impressive, with unemployment dropping to 4.3%, payrolls surpassing expectations at 130k, and wage growth exceeding forecasts, the market's reaction was underwhelming. The initial USD rally was partially reversed, and this wasn't due to doubts about the job figures. Instead, it indicates that markets remain focused on longer-term factors, prompting a more cautious approach to USD rallies. Consequently, the threshold for a USD recovery has risen, demanding additional positive data.
Today's lower jobless claims might not be sufficient, and some upward CPI surprises tomorrow could be necessary to provide sustained support for the dollar. For today, we expect DXY to stabilize around 97.0.
Francesco Pesole
EUR: Ukraine Talks in Focus
The EUR/USD pair's strength is primarily driven by strategic USD selling, with the euro itself contributing little. Today's eurozone economic calendar is empty, and no significant market-moving statements are expected from ECB speakers.
Ukrainian President Zelenskiy's announcement that next week's discussions with the US will focus on a territorial deal is noteworthy. Ceasefire negotiations have been slow, but next week's talks could bring fresh insights. We'll monitor European gas prices for signs of ceasefire optimism, which have been under pressure since February due to milder weather expectations.
EUR/USD is likely to hover around 1.1850-1.1900 today. While we slightly favor a downward trend, a stable profile in the near term seems more probable.
Additionally, we've published our SEK outlook for 2026 (https://think.ing.com/articles/sek-outlook-2026-slower-more-predictable-appreciation/). We foresee short-term correction risks for the krona due to stretched valuations, but remain bearish on both EUR/SEK and USD/SEK until the end of the year.
Francesco Pesole
GBP: Bearish Outlook Post-GDP
The UK economy concluded 2025 on a weak note, with construction and business investment lagging. Despite the latter being partly attributed to a cyberattack at a major UK car producer in Q3, the data for October and November had already hinted at this weakness.
The Bank of England's assessment aligns with this, as it had concluded that the economy ended 2025 on a weaker footing. Next week's jobs and inflation data will be more critical for the Bank. As long as hiring remains weak and wage growth slows, we anticipate a March cut from the BoE, followed by another move in June.
Our EUR/GBP outlook remains bullish, supported by our prediction of two BoE cuts by June, with 0.88 as a realistic short-term target.
Francesco Pesole
HUF: Inflation Allows Rate Cuts
January's inflation figures, released this morning, confirmed a sharp drop from 3.3% to 2.1% YoY, surpassing market expectations (2.4%) and the central bank's target (2.2%). This January figure is pivotal for the National Bank of Hungary's February meeting. The January meeting already highlighted this figure, and yesterday's minutes further emphasized it.
The breakdown reveals a year-on-year inflation decline across the board. Core inflation dropped from 3.8% to 2.7%, and more importantly for the NBH, service inflation slowed from 6.8% to 5.0% YoY. Today's figure should restart the NBH's cutting cycle, initiated in September 2024. We expect 25bp cuts in February and March, totaling 75bp this year, with an end-year rate of 5.75%. However, the key will be the April general election and market response.
Before the inflation figure was released, the market priced in a 65% chance of a rate cut in February. Today's figure is likely to support further dovish bets, with a fully priced-in rate cut imminent. Simultaneously, the priced terminal rate is at 5.50%, significantly above our forecast of 4.50%, presenting the greatest potential for repricing. This should exert pressure on the forint, which has rallied recently. Consequently, we anticipate EUR/HUF to rise above 380, possibly reaching 381-383.
Frantisek Taborsky
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