Friday’s softer than expected US inflation data didn’t have much effect on the main currency pairs, though they did contribute to a firming of Fed rate cut expectations and an extension of last week’s decline in bond yields. The yen was the star performer in FX last week – gaining around 3% and 2.5% against the dollar and the euro respectively – as it benefited from the decisive result in Japan’s recent election. The dollar also lost some ground to the euro and sterling, shedding a bit less than half a percent against both to end the week at about $1.1870 and $1.3650 respectively. EURGBP was broadly flat on the week at around £0.87. There are important UK economic data due this week, namely the labour market report for Q4 2025 on Tuesday and CPI inflation for January on Wednesday, which may have an impact on market expectations regarding the timing of the next cut in Bank of England interest rates and, hence, on sterling as well.
Yesterday’s Events
Following Friday’s inflation data, the market is now pricing in almost 65bps worth of Fed rate cuts this year, the most it has done so in 2026 to date. The firming of rate cut expectations post the inflation data contributed to a further decline in US government bond yields, which fell by 10-16bps on the week. Weakness in equity markets, particularly US stocks, also contributed to lower yields generally last week, with German and UK bonds both registering a decline in yields of 5-10bps across the curve. Regarding equity markets, the Nasdaq shed more than 2% and the S&P 500 lost around 1.5%, while the Stoxx Europe 600 was flat on the week.
Headline CPI inflation in US came in a bit lower than expected in January at 2.4%, down from 2.7% in December. Core inflation – which excludes energy and food prices – was in line with expectations at 2.5%, down from 2.6% in December. Within core inflation, goods inflation fell to 1.1% in January from 1.4% the previous month, while core services inflation dipped to 2.9% from 3%.
The Euro area economy grew by 0.3% q-o-q in the final quarter of 2025 according to the second GDP estimate published on Friday, unchanged from the flash estimate and the same as the Q3 outturn. On an annual basis, GDP grew by 1.3% in Q4 and averaged 1.5% growth for 2025 as a whole, a notable acceleration from 0.8% in 2024. Employment also continued to rise into year-end, increasing by 0.2% q-o-q in Q4, following an increase of 0.2% as well in the third quarter, and by 0.6% on a y-o-y basis.
The Day Ahead
Looking to the week ahead, as well as the UK labour market and CPI inflation data (on Tuesday and Wednesday respectively), other data of note due include Q4’25 GDP and PCE inflation for December in the US on Friday, and flash PMIs for February in the main economies, also on Friday. The Fed and ECB publish the minutes of their most recent monetary policy meetings on Wednesday and Thursday respectively, while a large number of Fed and ECB members are scheduled to speak over the course of the week.
Today's Talking Points 16.02.2026
Market Commentary
Friday’s softer than expected US inflation data didn’t have much effect on the main currency pairs, though they did contribute to a firming of Fed rate cut expectations and an extension of last week’s decline in bond yields. The yen was the star performer in FX last week – gaining around 3% and 2.5% against the dollar and the euro respectively – as it benefited from the decisive result in Japan’s recent election. The dollar also lost some ground to the euro and sterling, shedding a bit less than half a percent against both to end the week at about $1.1870 and $1.3650 respectively. EURGBP was broadly flat on the week at around £0.87. There are important UK economic data due this week, namely the labour market report for Q4 2025 on Tuesday and CPI inflation for January on Wednesday, which may have an impact on market expectations regarding the timing of the next cut in Bank of England interest rates and, hence, on sterling as well.
Yesterday’s Events
Following Friday’s inflation data, the market is now pricing in almost 65bps worth of Fed rate cuts this year, the most it has done so in 2026 to date. The firming of rate cut expectations post the inflation data contributed to a further decline in US government bond yields, which fell by 10-16bps on the week. Weakness in equity markets, particularly US stocks, also contributed to lower yields generally last week, with German and UK bonds both registering a decline in yields of 5-10bps across the curve. Regarding equity markets, the Nasdaq shed more than 2% and the S&P 500 lost around 1.5%, while the Stoxx Europe 600 was flat on the week.
Headline CPI inflation in US came in a bit lower than expected in January at 2.4%, down from 2.7% in December. Core inflation – which excludes energy and food prices – was in line with expectations at 2.5%, down from 2.6% in December. Within core inflation, goods inflation fell to 1.1% in January from 1.4% the previous month, while core services inflation dipped to 2.9% from 3%.
The Euro area economy grew by 0.3% q-o-q in the final quarter of 2025 according to the second GDP estimate published on Friday, unchanged from the flash estimate and the same as the Q3 outturn. On an annual basis, GDP grew by 1.3% in Q4 and averaged 1.5% growth for 2025 as a whole, a notable acceleration from 0.8% in 2024. Employment also continued to rise into year-end, increasing by 0.2% q-o-q in Q4, following an increase of 0.2% as well in the third quarter, and by 0.6% on a y-o-y basis.
The Day Ahead
Looking to the week ahead, as well as the UK labour market and CPI inflation data (on Tuesday and Wednesday respectively), other data of note due include Q4’25 GDP and PCE inflation for December in the US on Friday, and flash PMIs for February in the main economies, also on Friday. The Fed and ECB publish the minutes of their most recent monetary policy meetings on Wednesday and Thursday respectively, while a large number of Fed and ECB members are scheduled to speak over the course of the week.
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