February Currency Review

February was a month where markets responded to tangible economic data and a recalibration of monetary policy expectations. The result was a firmer US dollar, contained upside in sterling and a euro that struggled to establish sustained direction.

The US dollar recorded its first monthly gain since October as expectations for Federal Reserve easing were pushed further out. Recent inflation data showed progress but core readings remain above the Fed’s 2% target, limiting the case for rapid rate cuts.

Business activity surveys signalled a moderation in growth momentum, yet labour market conditions remain relatively resilient. Treasury yields held elevated levels through the month, and yield differentials continued to favour the dollar. In periods of geopolitical tension and trade uncertainty, capital rotated toward US assets, reinforcing underlying support.

Sterling traded within a defined range but with a softer tone against the dollar. UK inflation eased at the start of the year, strengthening market expectations that the Bank of England could begin easing policy later in 2026 if price pressures continue to moderate.

At the same time, services activity showed signs of slowing and broader growth indicators remain fragile. This combination has limited sustained upside in GBP/USD, while relative stability against the euro reflects broadly similar economic challenges across the region.

Eurozone data presented a mixed picture. Business activity surveys improved modestly, particularly within manufacturing, but overall growth remains subdued. Inflation has moderated, yet underlying price pressures remain uneven across member states.

The European Central Bank has maintained a cautious and data dependent stance. Without a decisive shift in policy guidance, the euro lacked a strong catalyst. EURUSD therefore remained largely contained within recent ranges, reflecting balance rather than conviction.

The central progression in February was the reassessment of rate cut timing. At the beginning of the year, markets were pricing aggressive easing across major economies. By month end, those expectations had been pared back.

Currency markets are now trading the projected path of policy rather than the absolute level of rates. This has increased sensitivity to individual data releases and amplified short term volatility around inflation and labour prints.

As we move into March, inflation data, labour market releases and central bank guidance will continue to shape direction. With rate expectations adjusting more frequently, short term volatility is likely to remain elevated across major pairs.

For those with upcoming international payments or cross border exposure, this is an environment where clarity on timing and structure becomes increasingly important.

If you would like to review how current market conditions may affect your position, reach out to our team.