The U.S. dollar steadied on Thursday, February 5, as traders positioned ahead of European Central Bank (ECB) and Bank of England (BoE) decisions and digested fresh signals from the Federal Reserve that rate cuts are not imminent. In Asian trading, the U.S. dollar index was up about 0.2% at 96.671, the euro hovered around $1.1800, and USD/JPY held near 156.92 as Japan’s election campaign entered its final stretch.
Behind the calm tape was a clear cause–effect setup: firmer U.S. rate expectations and risk-off positioning supported the dollar, while political risk and fiscal-spending expectations kept the yen under pressure into Sunday’s vote.
Why the Dollar Reclaimed the Narrative
Two forces are doing most of the work: relative rates and risk sentiment.
First, the rates channel. Reuters reported Fed Governor Lisa Cook emphasized concern about stalled inflation progress over labor-market weakness—signaling she would not back another cut until tariff-related price pressures ease. Futures markets reflected that posture, with Fed funds pricing implying a high probability of no change at the March 18 meeting.
Second, the risk-off channel. Reuters also linked the dollar’s resilience to a broader equity wobble—particularly tech-led volatility—pushing investors back toward dollar liquidity. In FX terms, when markets “de-risk,” the dollar often benefits not because the U.S. outlook is pristine, but because it remains the world’s primary funding and settlement currency.
A practical takeaway for traders: this is less about a single data point and more about the market repricing the path—from “cuts are coming soon” to “cuts require proof.”
Japan Election Risk: The Yen’s Political Discount
The yen has been the standout underperformer in G10, and the driver is unusually political.
In New York trade on February 4, Reuters said the yen was headed for a fourth day of losses ahead of elections expected to boost Prime Minister Sanae Takaichi’s fiscal and defense-spending agenda. The yen was last down about 0.7% at 156.82 per dollar, and Reuters noted it had fallen more than 2% since January 30.
Why does an election hit USD/JPY? Because markets translate “more fiscal spending + tax cuts” into more bond supply, higher yields, and weaker currency support, especially in a country already sensitive about debt dynamics. Reuters also pointed to an added pressure point: campaign rhetoric that appeared to favor a weaker currency sparked selling, even after clarifications.
There’s also a crucial circuit breaker in play: intervention risk. Reuters reminded readers that sharp yen moves in late January prompted speculation about “rate checks,” and traders remain alert to the possibility of coordinated action—meaning yen weakness can accelerate, then snap back violently.
A brief (fictitious) desk-level framing that matches how many macro funds think about it:
“USD/JPY is trading like a referendum on Japan’s policy mix,” said a Tokyo-based G10 strategist. “Election risk sets the bias, intervention risk sets the stop.”
The Data Twist: When Missing Payrolls Becomes a Market Input
Normally, the U.S. employment report is a dominant weekly catalyst for FX. This time, the market is dealing with a timing shock.
Reuters reported that a partial U.S. government shutdown delayed the release of key jobs data originally due Friday, pushing it to next week and adding uncertainty to the Fed-rate path. That delay has a real market impact: when a major volatility anchor disappears, traders lean harder on secondary indicators (surveys, inflation proxies, and Fed speak) and reduce conviction in near-term directional bets.
Adding to that, Reuters noted the ISM services report showed the sector held steady in January, while rising input costs hinted at a possible rebound in services inflation—exactly the kind of nuance that supports the Fed’s “wait for clarity” stance.
What It Means for FX Positioning Into the ECB, BoE, and Sunday’s Vote
With two major central banks on deck and Japan’s election days away, the market’s next moves likely hinge on guidance and narrative, not just rate holds.
- ECB: The ECB was expected to keep rates steady, with investors focused on the press conference for clues on how policymakers view easing bias versus uncertainty. Even subtle language tweaks can swing EUR/USD when positioning is crowded.
- BoE / GBP crosses: Sterling has been sensitive to rate differentials—recently hitting a multi-month high versus the euro as traders debated the pace of UK easing. For many macro desks, EUR/GBP is the cleaner expression of Europe-vs-UK policy divergence than GBP/USD.
- USD/JPY: Sunday, February 8, 2026, is the event risk. A result perceived as reinforcing expansionary fiscal policy can keep pressure on the yen, while any hint of jawboning or intervention talk can compress USD/JPY quickly.
Investor Bottom Line
The dollar’s bid right now is a cause–effect loop: sticky inflation risk + Fed caution + risk-off hedging supports the greenback, while Japan’s election uncertainty adds a political premium to USD/JPY. The clean “watch next” list is short: ECB messaging, BoE guidance, and Sunday’s Japan election outcome—with the delayed U.S. jobs data acting as the next major volatility reset once it finally lands.
