Central banks shake up forex

The ECB and Bank of England verdicts will affect the euro and Pound.
The Dollar benefits from S&P 500 selloffs.

Alexander Kuptsikevich FxPro

Growing demand for safe-haven assets and the closing of hedges by non-residents have been catalysts for the strengthening of the US dollar. The escalation of geopolitical risks in the Middle East, the associated rise in oil prices and the potential slowdown in the global economy are forcing investors to seek safe havens. A large-scale sell-off of gold, reminiscent of a burst bubble, is casting doubt on the precious metal's ability to fulfil these functions. The only option left is to buy greenbacks.

The fall in EURUSD has been driven by the worst rout in the US stock market since April’s America Liberation Day. Non-residents own more than a fifth of US securities. Despite the undermining of confidence in the dollar due to Donald Trump's policies, it is not so easy to abandon the US stock market. Corporate earnings there have grown faster over the past decade than in any other region of the world, and US technology companies have few worthy competitors abroad.

Foreign investors are left to hedge the risks of investing in US securities by selling dollars. The fall in the S&P 500 leads to the exit from longs in stocks and purchases of the greenback.

Investors are eagerly awaiting the ECB meeting. The deposit rate is likely to remain at 2%, unchanged since June. Earlier, the European Central Bank stated that it was in a comfortable position amid faster economic growth. However, the strengthening of the euro and inflation dipping below the target brings back to the table the scenario of a potential rate cut.

In January, consumer prices in the eurozone slowed to 1.7%, with core inflation falling to 2.2%. These are the lowest levels since September 2024 and October 2021, respectively. The disinflation process may activate the ‘doves’ on the Governing Council. If Christine Lagarde hints at a resumption of the monetary expansion cycle, EURUSD sales will accelerate.

Unlike the ECB, the Bank of England is not concerned about the strengthening of the pound. Britain has the highest inflation rate among G7 countries and is facing the problem of slowing economic growth amid tax increases. The futures market expects the repo rate to remain at 3.75% in February and gives a 70% chance of a cut in April. Any hints from the BoE in this direction will accelerate the GBPUSD selloff.

Author

Alexander Kuptsikevich

FxPro

Alexander Kuptsikevich, a senior market analyst at FxPro, has been with the company since its foundation. From time to time, he gives commentaries on radio and television. He publishes in major economic and socio-political media.

AUD/USD consolidates above 0.6950 amid bullish USD

AUD/USD consolidates during the Asian session on Thursday, trading just above 0.6950 as traders await further developments surrounding the Middle East crisis. The Pentagon reportedly ordered readiness for potential strikes against Iran. This keeps the geopolitical risk premium in play, which, along with hawkish FOMC Minutes on Wednesday and elevated US bond yields, supports the bullish US Dollar and caps the currency pair.

USD/JPY slips below 158.00 as bulls turn cautious amid JPY intervention fears

USD/JPY retreats further from a one-and-a-half-week top, touched the previous day, and slid below 158.00 during the Asian session on Thursday amid speculation that authorities will step in to prop up the Japanese Yen. Meanwhile, the US Dollar sits near an 18-month high, supported by Wednesday's hawkish FOMC Minutes and the risk of a further escalation of tensions in the Middle East. This might continue to act as a tailwind for the currency pair.

Gold hangs near two-month low; seems vulnerable around $4,100

Gold struggles to capitalize on the overnight bounce from a two-month low, trading with a mild negative bias around $4,100 during Thursday’s Asian session. Hawkish FOMC Minutes reaffirmed bets for at least one more rate hike by year-end. Adding to this, elevated US bond yields weigh on the non-yielding bullion. The US Dollar further benefits from geopolitical uncertainties and sits near an 18-month high, undermining the commodity.

Cryptocurrencies face new security risk as Ethereum researcher warns of potential ECDSA break

Ethereum (ETH) researcher Justin Drake has urged the crypto industry to begin preparing for a potential breakthrough that could undermine the cryptographic systems securing digital assets. In an X post on Wednesday, Drake called on the industry to calmly enter what he described as “bunker mode.”

The US 10-year just hit a 2002 high. Does it give the US Dollar its next leg?

In 2026, the US Dollar Index, which measures the Dollar against six major currencies, has risen on days when Federal Reserve rate expectations pushed Treasury yields up and barely moved on days when something else did. The last stretch of the 10-year yield's climb to its highest since 2002 was the second kind.

The UK 30-year gilt just hit a 1998 high. Is that good or bad for the British Pound?

The yield on the UK's 30-year government bond, or gilt, went through 6% on October 1 for the first time since early 1998, and on Monday the Pound was at its strongest against the Euro since June 2025. The gilt market's 28-year high is mostly someone else's. Since early May, the 30-year gilt yield has risen about 0.15 of a percentage point and the US 30-year about 0.7.