Daily Currency Market Report - 4 Feb 2026
1.0 USD
6.1.1 Synthesis
The US Dollar is trading defensively, struggling to maintain its recent rebound as domestic data softens and geopolitical crosscurrents intensify. Goldman Sachs highlights that while the Senate passed a funding bill to avert a shutdown, the January ADP employment report missed expectations (rising just 22k vs 45k consensus), signaling a potential "low-hiring" environment that could weigh on the upcoming Non-Farm Payrolls data. This softness, combined with a mixed ISM Services report, has tempered the market's enthusiasm for a hawkish Fed repricing. J.P. Morgan notes that despite the "Fed independence" noise, the dollar's inability to rally on recent yield spikes suggests buyer exhaustion. Geopolitically, the focus is on US-Iran nuclear talks; conflicting reports on their progress initially spiked oil prices and risk aversion, but clarification that talks would proceed helped stabilize sentiment. Structurally, J.P. Morgan points out that the US is actively managing energy flows, with President Trump reducing tariffs on India contingent on lower Russian oil imports, effectively using trade policy to redirect energy flows towards US and Guyanese crude. This "energy statecraft" underpins the dollar's long-term relevance even as cyclical data wobbles.
6.1.2 Key Themes
"Labor Softening" is the critical domestic theme; the weak ADP print (22k) raises the stakes for the NFP report, hinting that the "no landing" scenario may be fraying. "Energy Diplomacy" is reshaping flows; the US is leveraging tariffs to force India away from Russian oil, strengthening the dollar's role in the non-sanctioned energy trade (JPM). "Tech Rotation" is hitting equities; a slide in US tech stocks on AI disruption fears is creating a risk-off undertone that typically supports the dollar, but the greenback's failure to capitalize suggests positioning is already long.
6.1.4 Bulleted Analysis
Key Market Drivers:
Labor Miss: ADP employment rose only 22k, missing the 45k forecast and signaling hiring weakness ahead of the key NFP report (Nomura).
Geopolitics: Confusion over US-Iran talks sparked volatility in oil and risk assets, creating a choppy environment for the USD (Bloomberg).
Trade Policy: Trump's tariff deal with India (18% rate) is contingent on reducing Russian oil imports, showcasing the weaponization of trade to favor US energy (JPM).
Fed Outlook: MUFG notes the DXY lost momentum as strong ISM data was offset by weak labor signals, leaving the rate cut debate unresolved.
Supply/Demand Fundamentals:
Energy Flows: India has cut Russian crude imports to 1.1 mbd, replacing them with Guyanese and US barrels, a structural positive for the petrodollar (JPM).
Commodity Bid: Gold trading back above $5,000/oz signals ongoing diversification away from fiat, a long-term headwind for the USD (Saxo).
2.0 G10 Currencies
6.1.1 Synthesis
The G10 space is dominated by "Political Risk" in Japan and "Energy Security" in Europe. The Japanese Yen continues to crawl weaker, trading near 156.47, as the market positions for the February 8 snap election. MUFG and Goldman Sachs both warn that a potential landslide victory for the LDP is largely priced in, limiting immediate upside for USD/JPY, but the medium-term fiscal outlook remains a drag. The relationship between the Yen and yield spreads has broken down, with the currency failing to rally even as US yields softened slightly. The Euro is finding some support from "energy diversification"; Bloomberg reports that Germany is actively seeking LNG deals with Saudi Arabia and Qatar to reduce reliance on the US, a strategic pivot that could alter long-term capital flows. Macquarie notes a "tug-of-war" for the Euro: declining inflation argues for ECB cuts (negative), but improving growth surveys and political stability in France provide a floor. Meanwhile, the Australian Dollar faces headwinds from China's slowing growth and weak trade figures, though GS highlights that low-cost producers in the polyolefin space (like US/Middle East) are gaining share over naphtha-based producers in Asia/Europe, shifting industrial competitiveness.
6.1.2 Key Themes
"Election Anxiety" is capping the Yen; despite intervention warnings, the market is reluctant to buy JPY ahead of the Sunday vote (MUFG). "Strategic Autonomy" is the theme for Europe; Germany's move to diversify LNG sources away from the US signals a desire to decouple from American energy dominance. "Industrial shifts" are hurting traditional chemical producers; high-cost naphtha-based producers in Europe and Asia are losing money, weighing on currencies exposed to this sector (GS).
6.1.4 Bulleted Analysis
Key Market Drivers:
Japanese Yen (JPY): Weakening into the election; GS sees limited upside for USD/JPY post-election as a "landslide" is 95% priced in.
Euro (EUR): Macquarie sees conflicting forces: falling inflation invites cuts, but better growth surveys and French stability offer support.
LNG Diversification: Germany's push for Saudi/Qatar LNG deals aims to reduce US dependency, potentially diversifying Euro outflows (OilPrice).
Petrochemicals: GS notes high-cost naphtha producers in Europe are losing $100-150/t, a structural drag on the industrial base.
Supply/Demand Fundamentals:
Chemical Margins: Asian benzene prices rose, tracking crude, but ethylene remains weak due to oversupply, hurting margins for regional producers (Platts).
Fiscal Outlook: Nomura expects the ECB to hold rates at 2.00% as growth returns to trend, providing a yield floor for the Euro.
3.0 Asia Currencies
6.1.1 Synthesis
Asian currencies are showing resilience, anchored by a stabilizing Chinese Yuan (CNY). Goldman Sachs remains structurally bullish on the CNY, citing record trade balances ($1.4trn expected in 2026) and undervalued metrics. They identify MYR, KRW, THB, and TWD as the currencies most sensitive to Yuan strength, suggesting a "rising tide" effect for the region. Nomura has raised its conviction on a short USD/CNH trade, targeting 6.70, driven by lower daily fixings and official support. This bullish view on China contrasts with the "fiscal fragility" seen in high-yielders like Indonesia (IDR) and India (INR), which MUFG notes are underperforming due to fiscal concerns. The South Korean Won (KRW) is caught in the middle; while sensitive to the Yuan's rise, it faces headwinds from the tech sector's wobble ("AI disruption fears"). Nomura also highlights that most Chinese provinces missed 2025 growth targets, leading to lowered 2026 goals, which keeps the structural growth outlook modest despite the currency's stability.
6.1.2 Key Themes
"The Yuan Anchor" is solidifying; strong trade surpluses and policy support are making the CNY a pillar of stability for Asia. "Tech Sensitivity" remains a double-edged sword; while the CNY lifts the region, tech volatility weighs on the Won and Taiwan Dollar (GS). "Fiscal Divergence" is splitting the pack; North Asia (surplus economies) is outperforming South/SE Asia (deficit/fiscal concern economies) (MUFG).
6.1.4 Bulleted Analysis
Key Market Drivers:
Chinese Yuan (CNY): GS is bullish, citing a record trade surplus ($1.4trn in 2026) and undervaluation; Nomura targets 6.70 for USD/CNH.
Regional Correlation: GS identifies MYR, KRW, THB, and TWD as the top beneficiaries of a stronger Yuan.
China Growth Targets: Nomura expects Beijing to lower its 2026 GDP target to 4.5-5.0% after provinces missed 2025 goals, capping euphoria.
Petrochemicals: RIM reports Asian propylene prices holding steady, with maintenance at GS Caltex (Korea) expected to tighten supply in March.
Supply/Demand Fundamentals:
Trade Balance: China's massive trade surplus is a fundamental wall of money supporting the Yuan, offsetting capital account outflows (GS).
Energy Inputs: Rising benzene and paraxylene prices (tracking crude) are squeezing margins for Asian importers, a headwind for KRW and TWD (Platts).
4.0 Forecasts
6.1.6 Forecasts
USD/CNY (Nomura): Targets a move to 6.70 by mid-April, citing lower fixings and undervalued fundamentals.
Global Growth (JPM): Forecasts "above-potential" global GDP growth of 2.5% for 2025 (Q4/Q4), driven by US consumption.
China Trade (GS): Expects China's trade balance to hit a record $1.4 trillion in 2026, up from $1.2 trillion in 2025.
Euro Area Inflation (Nomura): Expects HICP to hover around 2.0% through 2027, with the ECB holding rates at 2.00%; sees risk of overshoot in 2028 requiring hikes.
Japan Election (GS): Sees a 95% probability of an LDP majority, with limited USD/JPY upside as the result is fully priced.
Oil Prices (Bloomberg): Investors are pouring money into oil ETFs (biggest inflow since pandemic) betting on a rally due to US-Iran tensions.
Tech Sector (Saxo): Views the current tech slide not as a breakdown but a "selective phase," focusing on defensible AI value rather than hype.
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