On February 5th, data released by Eurostat on February 4th revealed that the annual Consumer Price Index (CPI) for January stood at 1.7%. This figure was lower than December's 1.9% and also fell short of the 1.8% forecast by economists. The data was published just ahead of the European Central Bank's first interest rate decision meeting of 2026, providing a key rationale for maintaining the current interest rate level. Core CPI similarly decreased from 2.3% to 2.2%, while the services sector CPI also slowed to 3.2%, indicating a continued easing of price pressures across multiple areas. Inflation trends showed significant divergence among the 21 EU member states: Germany's inflation rate reached 2.1%, slightly above market expectations, while France's inflation rate unexpectedly dropped to 0.4%, hitting a five-year low. Markets widely anticipate that the ECB will keep its key interest rate unchanged at 2% for the fifth consecutive time during this policy meeting, reiterating its assessment that monetary policy is "in a good place."
In other news, US Treasury Secretary Besant stated during a congressional hearing on Wednesday that the President has the authority to influence the Federal Reserve's decision-making process. These remarks have once again sparked concerns about the independence of the Fed's monetary policy. Besant, appearing before the US House Financial Services Committee, was asked by Missouri Democratic Representative Emanuel Cleaver whether he would advise the President to "intervene rhetorically and politically" in the Fed's decisions. Besant responded, "That is his right... and it is the right of everyone here as well," apparently implying that members of Congress also have the right to express positions on central bank policy. Furthermore, Besant also discussed the US dollar during the hearing. The US dollar index fell by over 9% last year. He told Illinois Republican Representative Bill Foster, "We have always supported a strong dollar policy." However, this stance appears contradictory to former President Trump's preference for a weaker dollar, which typically helps enhance US export competitiveness.
Key data to watch today includes the Eurozone's monthly Retail Sales for December, US Initial Jobless Claims for the week ending January 31st, and the revised US Durable Goods Orders monthly figure for December. Additionally, the interest rate decisions from the Bank of England and the European Central Bank, due later today, require close attention.
USD Index The US Dollar Index edged higher yesterday with a slight daily gain, currently trading around 97.60. Besides support from short-covering, better-than-expected US ISM Non-Manufacturing PMI data for January released during the session also provided some lift. However, revived expectations for Fed rate cuts and a weak ADP employment report limited the index's rebound. Today, focus is on resistance near 98.00, with support around 97.00.
EUR/USD The Euro experienced consolidation yesterday, closing slightly lower and currently trading around 1.1800. Pressure came from a rebound in the US Dollar Index, coupled with the release of core inflation data from the Eurozone hitting its lowest level in nearly five years. Nevertheless, expectations that the ECB will maintain its current stance this week limited the pair's downside. Today, resistance near 1.1900 and support around 1.1700 are key levels to watch.
GBP/USD The British Pound moved lower yesterday, ending the day with a modest loss and currently trading near 1.3650. The rebound in the US Dollar Index, supported by positive economic data, exerted pressure, alongside disappointing economic data released from the UK during the session. However, expectations for the Bank of England to hold rates steady this week capped the currency pair's decline. Today, resistance is eyed near 1.3750, while support lies around 1.3550.