USD extended its rally for a second day, driven by risk-off sentiment and renewed focus on potential US-Iran tensions. The combination of a stronger USD along with the weak UK numbers in the morning saw GBP slump by 0.75% to new three-week lows. GBPEUR dropped to the lows of 2026. EURUSD dropped for the six consecutive day as German investor sentiment weakened.
*Daily move - against G10 rates as of 17:00 GMT, 17.02.26
** Indicative rates - interbank rates as of 17:00 GMT, 17.02.26
UK inflation slowed to 3% in January from 3.4%, its lowest since March 2025 and broadly in line with expectations, reinforcing the case for a possible BoE rate cut in March – 85% chance priced by markets. The Office for National Statistics said falling petrol prices drove the decline, while services inflation eased to 4.4%, slightly above forecasts giving GBP a bit of a relief to bounce off yesterday's lows.
USD is leaning on risk-off flows as US equities waver, with market sentiment now outweighing other drivers like monetary policy expectations that had previously capped the greenback. Recent analysis highlights that fading risk appetite – from softer job markets, cautious consumers, AI concerns – is removing a key source of pressure on USD. How far this rally can extend will hinge on how much further global equities can full further. For the currency, this revival of its negative correlation with US stocks – strongest since late 2024 – suggests the greenback is reclaiming its role as a haven amid broadening market caution.
For the rest of the day, we have some 2nd tier US data out in the form of durable goods orders, housing starts, and industrial as well as minutes from the latest FOMC meeting. With Asian liquidity thin due to Lunar New Year closures, early moves may be amplified, and ongoing geopolitical tensions, particularly in the Middle East, continue to support safe-haven flows and underpin USD moves.
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