27/02/2026
Written by: Ian Morley
Monthly Market Update: February 2026
Currency Movements
US Dollar (USD)
February was defined by sharp swings in the US Dollar as markets navigated central bank divergence, trade policy shocks and geopolitical escalation. Early in the month, weaker US labour market indicators—including a drop in JOLTS job openings and soft ADP data—sparked renewed expectations of Federal Reserve easing. However, sentiment shifted repeatedly. A stronger-than-expected Nonfarm Payrolls print, hawkish FOMC minutes and resilient jobless claims later restored a “higher for longer” narrative.
Political and legal developments added further volatility. The US Supreme Court’s ruling against unilateral tariff implementation under IEEPA briefly pressured the Dollar, though renewed White House rhetoric around alternative tariff frameworks and escalating Iran tensions helped stabilise USD into month-end. Overall, the Greenback ended February firm but fragile, highly sensitive to inflation data and policy credibility.
British Pound (GBP)
Sterling faced a challenging month. The Bank of England’s narrow 5–4 vote split exposed a deeper divide within the Monetary Policy Committee, sharply increasing expectations of a March rate cut. Political instability, including by-election fallout and cabinet-level disruption, compounded pressure on the Pound.
While strong retail sales data (including a 1.8% monthly surge mid-month and 4.5% YoY growth later on) provided intermittent support, weak GDP growth (0.1% in Q4) and soft labour figures kept Sterling on the defensive. GBP/USD repeatedly tested lower levels below 1.3500, while GBP/EUR drifted toward multi-week lows as policy divergence widened.
Euro (EUR)
The Euro traded in relatively contained ranges but showed resilience during periods of Dollar weakness. German industrial production weakness and softer services activity capped upside momentum early in the month. However, improving investor sentiment (Sentix turning positive) and firm German CPI data later offered support.
Trade tensions between Washington and Brussels also influenced price action. The EU’s suspension of US trade deal ratifications and the invalidation of certain tariff mechanisms under US law provided EUR/USD with a tailwind mid-month. Nevertheless, geopolitical risk and safe-haven USD demand prevented sustained rallies.
Australian Dollar (AUD)
The Australian Dollar was February’s standout performer. The Reserve Bank of Australia delivered a 25bps rate hike to 3.85%, accompanied by hawkish rhetoric and warnings that inflation remains persistent. Inflation expectations surged to 5%, while PMI data hit multi-year highs.
Markets priced in a strong probability of another hike by May, driving AUD/USD above 0.7000 and toward three-year highs near 0.7140. Even broader risk-off phases failed to meaningfully derail the currency, underlining how pronounced policy divergence has become between the RBA and other major central banks.
Canadian Dollar (CAD)
The Loonie remained largely driven by oil price fluctuations. WTI crude experienced multiple swings, initially falling on US–Iran nuclear talks before rebounding amid renewed Middle East tensions. While softer Canadian CPI reinforced expectations of further Bank of Canada easing, the CAD found support from stabilising oil prices and broad USD pullbacks late in the month.
Swiss Franc (CHF)
The Franc remained well supported by safe-haven flows throughout February. Geopolitical uncertainty—including escalating rhetoric toward Iran and broader trade instability—kept demand elevated. Although Swiss inflation remained subdued, limiting scope for immediate SNB tightening, CHF benefited from recurring bouts of global risk aversion.
Events Driving the Market
Policy divergence became the dominant FX driver.
The Court’s rejection of tariff implementation under IEEPA created sharp but temporary USD weakness. However, renewed White House commitment to pursuing alternative tariff routes restored volatility and kept trade policy risk elevated.
Escalating US–Iran rhetoric and military considerations supported safe-haven flows into USD and CHF, while oil price fluctuations directly impacted CAD and risk-sensitive currencies.
Weak GDP growth, labour market softness and political upheaval compounded Sterling’s vulnerability. Retail sales strength provided temporary relief but did not materially alter the rate-cut narrative.
Market Outlook
As we move into March, three themes dominate:
The Australian Dollar currently holds the strongest policy backdrop among G10 currencies, while Sterling remains the most vulnerable to domestic easing risk. The US Dollar retains defensive appeal but is increasingly sensitive to political credibility and legal constraints.
Volatility is likely to remain elevated as markets transition toward the second quarter with inflation, trade policy and central bank divergence firmly in focus.