Central Banks Just Moved: What It Means for Your USD Trades This Week

The forex market just got a massive dose of reality this week. Three major central banks made their moves, Japan held a historic election, and now we’re heading into the biggest U.S. data releases of February—Non-Farm Payrolls on Wednesday and CPI on Friday. If you’re trading USD pairs, buckle up.

Jaime Martinez Medina, Global Market Strategist at PU Prime commented:

The FX market enters a critical week after a series of key central bank decisions and major political developments, with attention now turning squarely to U.S. Non-Farm Payrolls and CPI, the data that will likely define near-term dollar direction.

The Bank of England held rates at 3.75%, but the narrow 5-4 vote revealed a central bank on the verge of easing. With inflation expected to fall back toward target and signs of labor market slack emerging, markets are increasingly confident that rate cuts are approaching. This reinforces a bearish bias for GBP, particularly if U.S. data proves resilient and rate differentials widen further in favor of the dollar.

The European Central Bank also stayed on hold, maintaining a cautious and data-dependent stance. Inflation is already below target, and while the euro has rallied strongly in recent weeks, the ECB has shown little urgency to push back against currency strength. As a result, EUR/USD may struggle to extend gains, with consolidation likely unless U.S. data delivers a clear downside surprise.

The standout development came from the Reserve Bank of Australia, which surprised markets by hiking rates to 3.85% amid persistent inflation and strong domestic demand. As the only major central bank moving in a hawkish direction, the RBA has shifted yield differentials decisively in favor of the Australian dollar, supporting further upside in AUD/USD if its policy stance remains intact.

Meanwhile, Japan’s election delivered political stability but no change in monetary policy. With the Bank of Japan still firmly dovish, the yen remains vulnerable, leaving USD/JPY supported unless U.S. data weakens materially.

That brings the focus to the main event. NFP and CPI will determine whether the dollar stabilizes or resumes its downtrend. Strong employment and sticky inflation would force markets to reassess Fed easing expectations, triggering a dollar rebound. Conversely, weak hiring or a soft inflation print would accelerate rate-cut bets and extend dollar losses.

In short, central banks have set the stage, now U.S. data decides the direction.

Bank of England: Stuck in No Man’s Land

The Bank of England kept rates at 3.75% on February 5th, but here’s the kicker—it was a nail-biter. The vote was 5-4, with four members actually wanting to cut rates by 25 basis points. That’s about as divided as you can get.

The BoE says inflation should drop back to their 2% target by April, and the labor market is showing slack. Translation? They’re probably going to cut rates soon. Most analysts are betting on March or April for the next cut, with two to three cuts likely this year.

GBP/USD outlook

This is bearish for the pound. If the BoE starts cutting while the Fed holds steady or cuts slower, you could see cable continue to give up ground. Watch for a move toward 1.34810 – 1.34305 or lower if economic data stays soft.

GBP/USD daily candlestick chart. Source: TradingView.

European Central Bank: On Autopilot

The ECB also held steady on February 5th, keeping rates at 2.00% for the fifth meeting in a row. President Lagarde said inflation is in a ‘good place’ at 1.7%—actually below their 2% target.

The euro has been rallying hard against the dollar, recently breaking above 1.19. A stronger euro helps keep import prices down (good for inflation), but it hurts European exports and could actually push inflation too low. The ECB basically shrugged this off and said they’ll keep watching the data.

EUR/USD outlook

Mixed signals here. The ECB isn’t being hawkish enough to push the euro significantly higher, but they’re also not panicking about inflation undershooting. EUR/USD could consolidate around 1.19130-1.19616 unless we get a major surprise from U.S. data.

EUR/USD daily candlestick chart. Source: TradingView.

Reserve Bank of Australia: The Shocker

The RBA just became the first major central bank to go from cutting rates to hiking rates. On February 3rd, they raised the cash rate by 25 basis points to 3.85%.

Why? Inflation came in hot at 3.4%, domestic demand is running way stronger than expected, and the labor market is tight. The RBA basically said, ‘We thought the economy was cooling, but nope—it’s overheating.’ They’re projecting inflation to stay above their 2-3% target range until early 2027.

AUD/USD outlook

This is bullish for the Aussie. The RBA is going in the opposite direction of everyone else, and markets are pricing in another hike in May. AUD/USD could push higher toward 0.7100 if this hawkish tone continues.

AUD/USD daily candlestick chart. Source: TradingView.

Japan Election: Political Stability, Currency Stability?

Over the weekend, Japan held a historic election. Prime Minister Sanae Takaichi’s Liberal Democratic Party absolutely crushed it, winning 316 seats—a post-war record and a two-thirds supermajority.

This gives Takaichi massive political power to push through her agenda: more defense spending, potential constitutional changes, and a tougher stance on China. Political stability is usually good for a currency, but Japan’s monetary policy is still ultra-loose, and the Bank of Japan isn’t in any hurry to normalize.

USD/JPY outlook

The election doesn’t change much for the yen in the short term. The BoJ is still dovish, so USD/JPY could stay supported around 157-158. If U.S. data comes in strong, don’t be surprised if we test 160.

USD/JPY daily candlestick chart. Source: TradingView.

This Week’s Main Event: NFP and CPI

Non-Farm Payrolls (NFP) (Wednesday, February 11th)

Expected: +70,000 jobs (after a weak December print)

Unemployment: Expected to hold at 4.4%

What to watch: If jobs come in above 150K, that’s dollar bullish. Below 50K? Expect the dollar to tank as rate cut bets accelerate.

Consumer Price Index (CPI) (Friday, February 13th)

Expected: 2.9% year-over-year

What to watch: Above 3.0% is dollar bullish—it means the Fed has to stay tight. Below 2.5% is dollar bearish—rate cuts are coming faster.

Where’s the Dollar Headed?

The DXY (U.S. Dollar Index) is currently sitting around 97.00 after falling nearly 10% in 2025. It recently tested lows not seen since early 2022 at 95.51. The big question: is this the bottom, or is there more downside?

Base case (most likely)

The dollar stays weak but doesn’t collapse. Look for DXY to trade between 95.551 and 99.482 over the next few weeks. The Fed is still expected to cut rates at least twice this year, which keeps a lid on dollar strength. The mid-point of this range at 97.522 is particularly interesting and could act as a pivot while traders try to figure out the timing of the Fed’s next move.

Bullish scenario

NFP crushes expectations (>150K) and CPI comes in hot (>3.1%). Markets reprice Fed cuts from June to September or later. DXY could rally back to 98.50-100.

Bearish scenario

Jobs disappoint (<50K) and CPI drops below 2.5%. Markets start pricing a March Fed cut. DXY could fall to 95.551 to 94.629.

The Bottom Line for Traders

GBP/USD: Bearish. The BoE is dovish and likely cutting soon. Watch for moves toward 1.35.

EUR/USD: Neutral. The ECB isn’t hawkish, but the euro has momentum. Range-bound around 1.18-1.20.

AUD/USD: Bullish. The RBA is hiking while everyone else is cutting or pausing. Look for 0.66-0.67.

USD/JPY: Bullish. The BoJ remains dovish despite political stability. 157-160 range likely.

DXY: Short-term direction depends entirely on this week’s data. Strong NFP and CPI could spark a relief rally to 99.492 to 100.395. Weak data accelerates the move to 95.551 to 94.629.

Final Thoughts

We’re at a critical juncture for the dollar. The RBA just threw a curveball by hiking, the BoE and ECB are stuck in dovish territory, and Japan’s election changed the political landscape but not monetary policy.

The real action happens this week. Wednesday’s NFP and Friday’s CPI will determine whether the dollar finds a floor around 96.762 to 96.476 or breaks down toward 95.137 to 94.629.