Some consolidation in FX markets
There was some consolidation in FX markets yesterday, after the swings seen recently, with the euro and sterling both confined to fairly narrow ranges against the dollar. They are trading at around $1.1830 and $1.3725 respectively this morning, not much changed from yesterday morning’s levels (albeit off lows for the week so far of about $1.1780 and $1.3620). The euro continues to gradually soften versus the pound, trading at a fresh 2026 low of about £0.8620. Elsewhere, the yen also continues to weaken against the dollar (now just shy of Y156.50) ahead of elections in Japan this weekend.
US government bond yields ended marginally lower amid weakness in equity markets, while German and UK yields earlier finished a touch higher on the day. The Nasdaq led a decline in US stocks, shedding almost 1.5%, while European indices ended broadly flat but well off their highs early yesterday morning. Oil prices jumped on news of the US shooting down an Iranian drone (despite US-Iran talks planned for later this week), though Brent crude at around $67.5 p/b remains well below last week’s highs (circa $72 p/b).
The ECB’s latest Bank Lending Survey (BLS) notes that “firms’ demand for loans continued to increase slightly…in the fourth quarter of 2025”, as did households’ demand for housing loans, though “demand for consumer credit decreased slightly” in the quarter. The BLS also reported a “net tightening of credit standards for loans or credit lines to firms” and a further tightening of credit standards for consumer credit (partly due to “perceived risks to the economic outlook”), while there was a “small net easing of credit standards for housing loans”.
Fed Governor Miran, who voted for a 25bps cut in interest rates at last week’s monetary policy meeting, says he’s “probably looking for a little bit more than a point (100bps) of cuts over the course of this year,” adding that “when I look at underlying inflation, I don’t really see a lot of very strong price pressures in the economy.”
Euro area inflation data due this morning are expected to show the headline rate fell to 1.7% last month (from 1.9% in December), according to the consensus forecast, and the core rate (i.e. excluding energy and food) unchanged at 2.3%. Producer prices (PPI) data are also scheduled in the Euro area, while US data due include the ISM services index and the ADP employment report, both for January. The ADP report is expected to show another fairly modest increase of 45k in private sector employment last month, following an increase of 41k in December. We also get final readings for the January services PMIs in the main economies.