Daily Forex News By XtreamForex

EUR/GBP edges higher near 0.8650 ahead of BoE and ECB policy decisions

The EUR/GBP pair trades modestly higher around the 0.8650 level during the late Asian session on Thursday. The uptick comes as the Pound Sterling underperforms, with traders remaining cautious ahead of the Bank of England’s (BoE) monetary policy announcement scheduled for 12:00 GMT.

The BoE is widely expected to keep interest rates unchanged at 3.75% following a rate cut at its previous meeting. Policymakers had earlier signaled that monetary policy would continue on a “gradual downward path.” As a result, market participants will closely analyze the policy statement and Governor Andrew Bailey’s press conference for clearer guidance on the future interest rate outlook.

The UK central bank is likely to maintain its stance on gradual easing, citing subdued labor market conditions and expectations that inflation will return to the 2% target in the second quarter of this year. However, recent data showed that Consumer Price Index (CPI) inflation picked up in December after easing in October and November, adding a layer of uncertainty to the outlook.

Meanwhile, the Euro remains broadly stable ahead of the European Central Bank’s (ECB) interest rate decision at 13:15 GMT. The ECB is also expected to hold rates steady, with officials emphasizing that policy adjustments would only be warranted in the event of a significant shift in inflation or employment trends.

Supporting the cautious tone, Eurozone preliminary Harmonized Index of Consumer Prices (HICP) inflation eased to 1.7% year-on-year in January, in line with expectations, down from 1.9% in December.

Australian Dollar stays under pressure amid cautious market mood

The Australian Dollar (AUD) extended its losses against the US Dollar (USD) for a third consecutive session on Friday, as broad risk aversion weighed on global markets. The risk-sensitive, commodity-linked AUD came under selling pressure after a sharp decline in global equities, driven largely by a tech-led sell-off and renewed concerns over heavy investment in artificial intelligence, which dented overall investor confidence.

Adding to the downside, Reserve Bank of Australia (RBA) Governor Michele Bullock stated that the central bank lifted the Official Cash Rate (OCR) because the economy is more capacity-constrained than previously assessed, requiring tighter monetary policy. Bullock emphasized that demand growth must be restrained unless supply capacity improves at a faster pace.

Meanwhile, Australia’s Trade Balance data released on Thursday showed that the trade surplus widened to AUD 3,373 million in December 2025, up from a downwardly revised AUD 2,597 million in November and slightly above market expectations of AUD 3,300 million. Exports rose 1.0% month-on-month (MoM), recovering from an upwardly revised 4.0% fall in November, supported mainly by metal ores and minerals. Imports declined by 0.8% MoM, a sharper drop than the revised 0.2% contraction previously recorded, largely due to weaker demand for other merchandise goods.

Earlier this week, the RBA raised the OCR by 25 basis points to 3.85%, citing stronger-than-expected economic growth and persistently high inflation. As the tightening cycle continues, markets now assign an 80% probability to another rate hike in May and are pricing in around 40 basis points of additional tightening over the remainder of the year.

US Dollar eases after recent gains

The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, edged lower after two straight sessions of gains and was hovering near the 97.90 level at the time of writing.

Market participants are awaiting the preliminary February reading of the Michigan Consumer Sentiment Index, scheduled for release later in the North American session.

The US Dollar softened as recent labor market data pointed to easing employment conditions, reinforcing expectations that the Federal Reserve may adopt a more dovish stance. Markets are currently pricing in two interest-rate cuts this year, with the first potentially beginning in June, followed by another in September.

According to the CME FedWatch Tool, there is nearly a 77.3% probability that the Federal Reserve will keep interest rates unchanged at its March policy meeting, with expectations building for an initial rate cut in June.

Data from the US Department of Labor showed Initial Jobless Claims rose to 231,000 for the week ending January 31, exceeding both market estimates of 212,000 and the prior reading of 209,000. Separately, ADP data revealed that private sector payrolls increased by just 22,000 in January, falling well short of expectations for 48,000 and below the previous 37,000 figure (revised from 41,000).

Fed Governor Lisa Cook noted that she would not support further rate cuts without clearer signs that inflation is easing, highlighting greater concern over stalled disinflation than weakness in the labor market.

Investors also assessed the potential impact of Kevin Warsh’s nomination as Federal Reserve Chair. Warsh is seen as favoring a smaller balance sheet and a more cautious approach to rate cuts. US President Donald Trump added that he would not have nominated Warsh if he supported rate hikes, stating that interest rates remain “way too high,” and suggesting that rate reductions are likely as the US economy strengthens.

China and Australia data provide mixed signals for AUD

China’s Services Purchasing Managers’ Index (PMI) rose to 52.3 in January from 52.0 in December, beating market expectations of 51.8. Given China’s role as Australia’s largest trading partner, stronger Chinese economic activity can influence the outlook for the Australian Dollar.

In Australia, S&P Global’s Composite PMI climbed sharply to 55.7 in January from 51.0 in December, marking the strongest expansion in 45 months. The Services PMI rose to 56.3 from 51.1, its highest level since February 2022, exceeding the flash estimate of 56.0 and remaining well above the 50.0 expansion threshold. This extended the run of growth in the services sector to two consecutive years.