The core event across all three articles is the anticipation of the US Personal Consumption Expenditures (PCE) Price Index report for January, which is the Federal Reserve's preferred inflation gauge and is due to be released later on Friday. This data is widely expected to influence market expectations regarding the Fed's interest rate policy, with markets currently pricing in a 99% chance that the Fed will hold rates steady at its next meeting according to the CME FedWatch tool [1]. Futures markets and economists also expect the Fed to keep the federal funds rate unchanged at 3.50%–3.75% [2].
Currency markets are showing cautious moves ahead of the PCE data. The NZD/USD pair posted modest gains near 0.5855 during the early Asian session, though ongoing Middle East conflicts and associated geopolitical risks are seen as capping further upside for the Kiwi [1]. The GBP/USD pair is trading around 1.3370, recovering from previous losses as the US Dollar Index retreats, but the Greenback could regain support if geopolitical tensions escalate [2]. The USD/JPY pair has pulled back to the 159.00 mark after reaching year-to-date highs, with intervention fears and recent rate checks by Japanese authorities exerting pressure on the pair [3].
Geopolitical developments are a significant market driver, with Iran’s new supreme leader, Mojtaba Khamenei, stating that Tehran would seek to keep the Strait of Hormuz effectively closed, using it as a tool to pressure adversaries and warning US military bases in the region to close or face potential attacks [1][2]. These tensions have contributed to surging oil prices, which in turn are supporting safe-haven demand for the US Dollar and complicating the outlook for energy-dependent economies like Japan [2][3].
On the policy front, Reserve Bank of New Zealand Governor Anna Breman indicated that monetary policy will likely remain accommodative to support a fragile economy, with markets now pricing in at least two Official Cash Rate hikes by the end of 2026, largely due to energy price shocks from Middle East conflicts [1]. In the UK, markets are increasingly confident that the Bank of England will cut rates at its next meeting, but rising inflationary pressures from higher oil prices may prompt policymakers to delay such moves [2]. For Japan, the surge in crude oil prices threatens to drive up consumer prices and weaken economic growth, complicating the Bank of Japan's normalization efforts [3].
Market participants are largely in a wait-and-see mode ahead of the US PCE data, which is expected to show a 2.9% YoY increase in the headline figure and a 3.1% rise in the core measure for January [1]. Any signs of softer inflation could weigh on the US Dollar and provide a tailwind for risk currencies like the NZD and GBP, while persistent inflation could reinforce the Greenback’s strength and delay Fed rate cuts [1][2][3].
CONCLUSION
Markets are focused on the upcoming US PCE inflation data, which is expected to shape Federal Reserve policy expectations. Geopolitical tensions in the Middle East and rising oil prices are supporting the US Dollar and complicating the outlook for other major currencies. The overall market sentiment is cautious, with high impact expected from the PCE release.