Daily Currency Market Report - 6 Feb 2026
1.0 USD
6.1.1 Synthesis
The US Dollar is rebounding after an initial post-FOMC sell-off, with renewed momentum driven by geopolitical jitters and a "hawkish hold" narrative gaining traction. J.P. Morgan highlights that while deleveraging was a theme last week, the USD pullback was "tamer" than expected relative to the volatility in other assets like crypto and metals. The bank has raised its targets for AUD/USD (0.73) and NZD/USD (0.63), signaling a rotation away from the US dollar and into pro-cyclical currencies, but maintains a structural short bias on EUR and GBP. Goldman Sachs argues that the dollar's high valuation is showing "wear and tear" as the US asset market cycle ages, suggesting global investors may start dialing down USD exposure. However, the nomination of Kevin Warsh as Fed Chair is seen as a neutral-to-positive factor for the greenback, unlikely to dramatically alter the policy path. Domestically, the January employment report is the key focus; Nomura expects a robust 85k jobs gain and unemployment ticking down to 4.3%, which would reinforce the "US resilience" theme and potentially lift yields. Saxo notes that the USD strengthened after stronger-than-expected ISM Services data and hawkish Fed speak, but the overall trend remains choppy as markets digest mixed signals from labor data (ADP miss vs. claims strength).
6.1.2 Key Themes
"Rotation from US Exceptionalism" is a growing theme; investors are diversifying into broader global markets (Japan, Asia) as US tech leadership falters. "Geopolitical Risk Premium" remains; tensions with Iran and uncertainty over US trade policy keep a bid under the dollar as a safe haven of last resort. "Data Dependence" is intensifying; with the Fed on hold, every data point (NFP, CPI) triggers outsized volatility as markets try to gauge the timing of the next cut.
6.1.4 Bulleted Analysis
Key Market Drivers:
Fed Outlook: Markets are pricing fewer cuts (~48bps) after solid ISM data, but weak ADP (22k) keeps the debate alive (MUFG).
Equity Flows: US stocks suffered nearly $17bn in outflows, signaling foreign investors are rotating into cheaper markets, a headwind for the USD (Bloomberg).
Commodity Divergence: Gold >$5,400/oz signals fiat debasement fears, while oil rallies on Iran risks, creating cross-currents for the dollar (Kitco).
Labor Market: NFP expected at +85k; a strong print would challenge the dovish narrative and support the USD (Nomura).
Supply/Demand Fundamentals:
US Refining: Margins rose 20% in 2025, supporting energy sector profitability and dollar inflows from energy exports (GS).
Tech Capex: Alphabet's massive $175-185bn capex plan signals continued investment, but market skepticism is weighing on tech stocks and related capital flows (Saxo).
2.0 G10 Currencies
6.1.1 Synthesis
The G10 space is dominated by "Political Events" and "Central Bank Divergence." The Japanese Yen is weakening into the February 8 election, with MUFG noting that the market has largely priced in a Takaichi victory. However, the currency remains vulnerable to post-election fiscal announcements, with expectations of increased spending weighing on sentiment. Goldman Sachs sees limited upside for USD/JPY post-election as a "landslide" is already 95% priced in. The Bank of England delivered a "dovish hold" (5-4 vote), which Nomura interprets as a signal for a March cut, weighing on Sterling. The Euro is struggling as the ECB remains firmly on hold, with President Lagarde dismissing low inflation prints as transitory. Macquarie notes that while European growth is improving, the disinflation trend is intact, keeping yields capped. The Canadian Dollar is finding support from rising oil prices and a "hawkish hold" from the BoC, which kept rates at 2.25% and maintained neutral guidance.
6.1.2 Key Themes
"Fiscal Dominance" in Japan is the key risk; markets fear a Takaichi win will lead to debt-funded spending, hurting the Yen despite higher yields. "Dovish Pivot" in the UK; the BoE's split vote suggests rates will come down sooner than expected, removing a pillar of support for GBP. "Energy Resilience" supports the CAD; Canadian oil exports to Asia are rising, diversifying away from US dependence (Dow Jones).
6.1.4 Bulleted Analysis
Key Market Drivers:
Japanese Yen (JPY): Weakening on election risks; MUFG sees USD/JPY drifting back toward 160 as fiscal expansion fears dominate.
Sterling (GBP): Under pressure after a dovish 5-4 BoE vote; Nomura sees a cut in March and a terminal rate of 3.25%.
Euro (EUR): Trading heavy; GS warns of "stagflationary" risks if energy prices spike due to cold weather.
Canadian Dollar (CAD): Supported by oil and a stable BoC; GS likes CAD as a funder due to its high beta to the dollar but lower volatility.
Supply/Demand Fundamentals:
LNG Supply: GS forecasts a massive global LNG supply wave starting in 2025, which will eventually lower energy costs for Europe, a long-term positive for the Euro.
Iron Ore: Macquarie sees global steel demand rising to 2,039 Mt by 2035, supporting Australian exports.
3.0 Asia Currencies
6.1.1 Synthesis
Asian currencies are showing "Resilience and Differentiation." The Chinese Yuan (CNY) remains the anchor, with Goldman Sachs bullish on the currency due to record trade surpluses ($1.4trn expected in 2026) and undervaluation. Nomura has a high-conviction short USD/CNH trade, targeting 6.70. The South Korean Won (KRW) is facing headwinds from the global tech sell-off, with the KOSPI plunging 3.9% on momentum selling. However, GS notes that the earnings upgrade cycle in Korea and Taiwan is strong, which should attract inflows once volatility settles. The Indian Rupee (INR) faces a "capital inflow problem," with MUFG highlighting a drying up of foreign portfolio flows, leaving the currency vulnerable to global risk-off shifts. Singapore is seeing its currency model signal a re-weighting, suggesting limited upside for the SGD.
6.1.2 Key Themes
"The Yuan Anchor" is stabilizing the region; strong trade data and policy support are keeping the CNY firm. "Tech Volatility" is the main risk; the unwind of the AI trade is hurting North Asian currencies (KRW, TWD) in the short term. "Capital Flow Rotation" is evident; money is moving out of expensive markets (India) and into value plays (China), shifting FX dynamics.
6.1.4 Bulleted Analysis
Key Market Drivers:
Chinese Yuan (CNY): GS targets further appreciation, supported by a massive trade surplus and policy tolerance.
South Korean Won (KRW): Hit by tech equity outflows; Nomura expects the BOK to stay on hold through 2026 to support the currency.
Indian Rupee (INR): Facing headwinds from capital outflows; MUFG warns of vulnerability due to reliance on hot money.
Thai Baht (THB): Nomura is adding receiver positions in Thai rates, signaling expectations for easing or lower yields.
Supply/Demand Fundamentals:
Petrochemicals: Platts reports tight supply for Asian propylene due to maintenance, supporting margins for producers in Korea and Taiwan.
Trade Balance: China's record trade surplus provides a fundamental floor for the Yuan, offsetting capital account volatility (GS).
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