Dollar regains footing as policy uncertainty returns to centre stage

February saw the US dollar regain lost ground after a volatile start to the year, as markets reassessed the likely path of US monetary policy and responded to uneven economic signals. Gold also recovered following its sharp late-January pullback, while currency markets reflected diverging political and economic developments across major economies. The Japanese yen strengthened briefly on domestic political clarity, while sterling weakened amid softer labour data and renewed uncertainty around UK policy direction.

This review looks back at the key drivers behind last month’s price action, examines expectations ahead of the Federal Reserve’s March meeting, and outlines the technical landscape for XAUUSD, GBPUSD, and USDJPY.

US data sends mixed signals as Fed path remains contested

Minutes from the first Federal Open Market Committee meetings of 2026 highlighted growing disagreement among policymakers over the timing and scale of any rate cuts this year. Expectations for the first reduction were already pushed back late last year, with markets now split between a prolonged pause and a single cut by mid-year. Current pricing suggests July is the earliest point at which a majority expects rates to move lower, toward the 3.25%–3.50% range.

Economic data has done little to clarify the outlook. Preliminary GDP figures for Q4 2025 surprised sharply to the downside, with growth slowing to 1.4%, far below both consensus expectations and the previous quarter’s unusually strong expansion. Consumer spending remained positive but decelerated, while government expenditure fell noticeably due to the October shutdown. Export growth also cooled after an exceptionally strong prior quarter.

At the same time, labour market data complicated the narrative. February’s non-farm payrolls report showed a gain of 130,000 jobs, the strongest print since late 2024, while unemployment edged lower. Inflation, however, remains above target at 2.4% year-on-year. The combination of resilient employment, moderating but still elevated inflation, and weaker growth leaves the Fed with limited clarity.

Attention now turns to March’s inflation data and, crucially, the Fed’s press conference on 18 March. Markets are overwhelmingly priced for rates to remain unchanged at 3.50%–3.75%, but forward guidance will be closely scrutinised.

Sterling pressured by softer data and rising rate-cut expectations

The pound came under renewed pressure in February as domestic economic weakness and dovish policy signals weighed on sentiment. On 5 February, the Bank of England surprised markets with a narrowly split vote to hold rates at 3.75%, with four MPC members favouring an immediate cut. This reinforced expectations for easing as early as March and raised the likelihood of multiple cuts later in the year.

Political noise added to the pressure, as Prime Minister Keir Starmer faced scrutiny over past alliances and leadership speculation resurfaced mid-month. More materially, labour market data showed unemployment rising to a five-year high by the end of 2025, reinforcing concerns about slowing momentum in the UK economy.

19 March is shaping up as a key date for sterling, with the BoE decision and the latest employment report released on the same day. Markets will be watching both the voting split and any confirmation that labour-market weakness is becoming entrenched.

Gold stabilises above key levels amid policy and geopolitical cross-currents

Gold extended its recovery in February following January’s sharp sell-off, supported by ongoing geopolitical tension and renewed debate over US trade policy. The US Supreme Court’s challenge to tariff measures added another layer of uncertainty, while military posturing in the Gulf kept risk premiums elevated.

Countering these supportive factors were stronger US employment data and the Fed’s cautious tone, both of which weighed on expectations for rapid easing. For now, the $5,000 level remains a key reference point. A late-February push toward $5,100 tested upside momentum, though trading volumes were subdued due to US holidays and Lunar New Year effects.

From a technical perspective, the broader uptrend remains intact, but downside risks persist. The 50-day SMA near $4,800 could act as dynamic resistance if selling pressure returns. Whether the recent move higher proves sustainable will depend heavily on upcoming US data and shifts in rate expectations.

GBPUSD tests support as momentum weakens

Cable drifted lower through much of February as weaker UK data contrasted with relatively firmer US signals. The pair briefly stabilised after disappointing US GDP figures and legal challenges to US tariff policy, but overall momentum remained fragile.

Price action is approaching a key support zone near $1.34, where the 100- and 200-day SMAs converge alongside the 23.6% weekly Fibonacci retracement. While the broader uptrend has not conclusively broken, volume trends since late January have favoured the downside.

With momentum indicators oversold and some buying interest emerging late in the month, a corrective bounce toward the 50-day SMA near $1.355 remains possible. Direction in early March is likely to hinge on US macro releases.

USDJPY consolidates after election-driven volatility

Dollar-yen found support near ¥152 following February’s election-related volatility. The confirmed double-bottom pattern suggests limited downside in the absence of a strong new catalyst. Momentum indicators have turned higher from oversold conditions, and trading volume remained elevated relative to other major pairs.

That said, upside potential appears constrained. Market attention remains focused on the ¥160 area as a potential intervention threshold for Japanese authorities. Before that, resistance around the 50- and 100-day SMAs could cap gains.

With no immediate shift expected from either the Fed or the BoJ, USDJPY may remain range-bound in the near term, trading sideways unless fresh policy signals emerge.

The opinions in this article are personal to the writer; they do not represent those of Exness. This is not a recommendation to trade.