Financial markets opened a data-heavy week slightly higher as easing fears of a U.S.-Iran war mixed with softer economic data and mixed comments from Federal Reserve (Fed) officials. Still, gains were limited as investors stayed cautious ahead of key events such as the US Non-Farm Payrolls (NFP), Consumer Price Index (CPI), Japanese election results, UK Gross Domestic Product (GDP) data, and China inflation figures. US Globex opened with US equities higher, while oil prices moved lower.
Kevin Warsh’s proposal to review the Federal Reserve–US Treasury relationship raised concerns that closer coordination could weaken monetary independence, change bond issuance patterns, and increase inflation risks, although supporters believe clearer balance-sheet rules could help stabilise markets.
The University of Michigan (UoM) February consumer sentiment index rose to a six-month high of 57.3, beating the 55.0 forecast.
From the Fed, Vice Chair Philip Jefferson said the labour market is stabilising, and inflation should ease. San Francisco Fed President Mary Daly said policymakers must balance both sides of the Fed’s mandate, called the situation precarious, and said she leans toward more rate cuts in 2026.
Geopolitics remained in focus after Hong Kong media tycoon Jimmy Lai was sentenced to 20 years in prison, a move expected to further strain relations between China and Western governments and add a human-rights element to tense US–China relations. At the same time, US–Iran talks were said to be paused “for now,” but hopes that discussions may continue reduced war fears, improved sentiment, and weighed on oil prices.
Japanese markets reacted strongly to politics after Prime Minister Sanae Takaichi won a snap election by a landslide, the biggest post-war victory for any ruling party. Her Liberal Democratic Party won 316 of 465 lower house seats, with projections briefly as high as 328. Together with coalition partner Ishin, the ruling bloc secured a two-thirds supermajority, allowing it to pass legislation without opposition support.
Markets saw the result as providing stability for Takaichi’s fiscal agenda, including higher public spending and tax relief. The Nikkei 225 and the broader Topix index both hit record highs, while Japanese government bond yields rose on expectations of increased issuance and reflationary policies.
Japan’s real wages fell 0.1% year-on-year in December, marking a 12th straight monthly decline. Although nominal wage growth improved, it continued to lag inflation, complicating the Bank of Japan (BoJ) outlook after its December rate hike.
Japanese officials warned against excessive currency moves. Finance Minister Satsuki Katayama said she was ready to respond to sharp swings and remained in close contact with US Treasury Secretary Scott Bessent. Top currency diplomat Atsushi Mimura said authorities were watching foreign exchange markets with a high sense of urgency, while Chief Cabinet Secretary Minoru Kihara warned against rapid, one-sided moves. The yen later stabilised, with USDJPY easing toward 156.20 before settling near 156.80.
China continued to add to its gold reserves for a 15th straight month.
Bank of England (BoE) Governor Andrew Bailey spoke at the International Monetary Fund (IMF) Saudi AlUla conference after last week’s BoE decision to hold rates. He highlighted the long-term role of artificial intelligence while keeping a cautious, data-driven tone as markets watch inflation and wages. BoE Chief Economist Huw Pill warned against taking too much comfort from the recent dip in inflation.
UK politics added pressure as unconfirmed rumours suggested Prime Minister Keir Starmer could resign, linked to the Peter Mandelson–Jeffrey Epstein controversy. While unverified, the situation increased political tension ahead of Starmer’s expected address to Labour Members of Parliament, keeping GBP and UK government bonds sensitive.
In the Asia-Pacific region, the New Zealand dollar steadied as weaker domestic data clashed with a hawkish Reserve Bank of Australia (RBA). New Zealand’s fourth-quarter labour market data reduced expectations of near-term tightening by the Reserve Bank of New Zealand (RBNZ).
Canada’s January employment report showed a loss of 24.8K jobs, compared with expectations of a 7.0K gain.
Against this backdrop, the U.S. Dollar Index (DXY) extended Friday’s pullback from a two-week high, helping gold, silver, major currencies, and Antipodean currencies recover. USDJPY remained pressured by Japanese intervention warnings aimed at defending the Japanese yen (JPY). Cryptocurrencies edged higher, while Asia-Pacific equities advanced, tracking gains from Wall Street at the end of last week.
The U.S. Dollar’s pullback, along with cautious optimism from European Central Bank (ECB) officials and a positive tone ahead of ECB President Christine Lagarde’s speech, supported the euro. This followed last week’s ECB decision to keep policy unchanged, allowing EURUSD to extend its recovery from Friday.
In contrast, GBPUSD struggled to build on the previous day’s rebound as rumours about the UK Prime Minister’s possible resignation and mixed comments from Bank of England (BoE) officials weighed on the British Pound (GBP).
USDJPY reversed from a two-week high and ended its six-day winning streak as mixed market sentiment, a pullback in the U.S. Dollar, and renewed talk of Japan intervention pressured the pair. Earlier, near-confirmation of a major victory for Japan Prime Minister in the snap election initially pushed USDJPY to a multi-day high and lifted Japanese equities to record levels, before intervention concerns pulled prices lower.
A softer U.S. Dollar, cautious market optimism, and hawkish talk from the Reserve Bank of Australia (RBA) lifted AUDUSD early Monday. In contrast, NZDUSD struggled to move higher as weak New Zealand employment signals challenged the hawkish expectations around the Reserve Bank of New Zealand (RBNZ). Meanwhile, USDCAD extended Friday’s decline despite weaker Canada jobs data and lower oil prices, Canada’s key export, as a hawkish bias from the Bank of Canada (BoC) gained traction, and Canada appeared to be gaining broader global support.
Gold and silver prices rose for a second straight day, restoring buyer confidence amid market uncertainty, a softer U.S. Dollar and China’s continued accumulation of gold reserves. Meanwhile, crude oil prices paused their recent recovery as fears of a U.S.-Iran war eased.
Bitcoin (BTC) and Ethereum (ETH) posted strong gains on Friday and continued to edge higher as a softer U.S. Dollar and cautious optimism supported the cryptocurrency market, mainly after China eased rules on Real World Assets (RWA).
Elsewhere, mixed U.S. data, Federal Reserve (Fed) commentary, and easing geopolitical tensions, together with optimistic remarks from Nvidia Chief Executive Officer (CEO), lifted Wall Street and carried a mildly positive tone into early Monday, supporting Asia-Pacific equities. NVIDIA Chief Executive Officer (CEO) Jensen Huang said on CNBC that the current cycle is a once-in-a-generation infrastructure build-out, hyperscalers remain constrained by chip supply, company cash flows are set to rise, and NVIDIA is targeting what he called the largest opportunity in history.
Speeches from European Central Bank (ECB) officials feature on Monday’s economic calendar, but the main focus will be on this week’s US inflation and employment reports, Japan election results, UK Gross Domestic Product (GDP) data, and China inflation figures. Fresh concerns over Federal Reserve (Fed) independence and mixed US data could pressure the US Dollar (USD). However, uncertainty around geopolitical risks linked to Iran, China, and Russia, along with Federal Open Market Committee (FOMC) officials’ reluctance to cut rates further, may limit the Greenback’s downside. In this environment, gold and the Japanese yen (JPY) could extend their recent recoveries, equities may continue to rise, while cryptocurrencies may enter a consolidation phase after strong gains.
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