Weekly Market Outlook | 2 – 6 February 2026

Global financial markets enter the first week of February with liquidity fully restored and investor focus shifting decisively toward macro confirmation. Following January’s positioning adjustments, markets are now increasingly driven by incoming economic data, central-bank guidance, and cross-asset repricing as participants assess whether early-2026 trends validate expectations for growth and monetary easing later in the year.

Investor attention remains firmly centred on the United States, with labour-market resilience, inflation momentum, and financial-conditions tightening all under scrutiny. Markets are also digesting January’s central-bank messaging, reassessing policy divergence across major economies, and monitoring renewed volatility across FX and commodities.

Recent market behaviour suggests a transition from early-year recalibration toward more conviction-based positioning. Equity indices are attempting to establish directional bias, the U.S. dollar remains sensitive to rate expectations, and commodities continue to reflect geopolitical and supply-side risks rather than purely demand-driven signals.

Key Points to Watch

• With liquidity conditions now fully normalised, markets are increasingly reactive to macroeconomic data and policy-related headlines across FX, rates, and risk assets.
• U.S. labour-market and inflation-related releases remain critical for shaping expectations around the timing and pace of Federal Reserve policy easing in 2026.
• Markets continue to reassess whether January’s data supports a “soft-landing” narrative or signals further downside risks to global growth.
• FX volatility remains elevated, particularly in yen crosses, as yield differentials and Bank of Japan policy expectations continue to influence global carry dynamics.
• Energy markets remain sensitive to geopolitical developments and supply risks, reinforcing oil’s role as a key inflation variable in early 2026.
  

Fed Outlook, Data Sensitivity, and February Positioning

While no Federal Reserve policy meeting is scheduled for the week, markets remain highly sensitive to any data that could challenge or reinforce the Fed’s data-dependent stance. January’s communications have underscored caution, with policymakers emphasising the need for sustained evidence of disinflation before committing to a clear easing path.

Upcoming U.S. economic releases, particularly labour-market indicators and inflation-related data, are expected to drive repricing across rates and FX markets. Signs of continued labour-market resilience may delay rate-cut expectations, while any meaningful cooling could reignite optimism for policy easing later in the year.

With institutional positioning increasingly aligned to macro fundamentals rather than seasonal flows, near-term price action is likely to remain data-driven. The U.S. dollar’s direction will hinge on whether incoming data continues to support relative U.S. economic outperformance.

Europe and UK: Growth Uncertainty Meets Policy Caution

European markets enter February facing persistent growth challenges. Recent economic indicators continue to reflect subdued demand, tight financial conditions, and ongoing pressure on manufacturing activity. While inflation has moderated, growth momentum remains fragile, leaving sentiment vulnerable to negative data surprises.

In the UK, sterling remains sensitive to shifting expectations around fiscal credibility and the Bank of England’s medium-term policy outlook. With liquidity fully restored, GBP pairs may experience sharper reactions to macro releases and changes in global risk sentiment.

Overall, investor appetite for European assets remains cautious, with policy uncertainty and growth concerns limiting upside despite stabilising financial conditions.

Japan and FX Markets: Yen Volatility Remains a Global Risk Factor

Japan continues to play a pivotal role in global FX dynamics. Elevated Japanese government bond yields and ongoing speculation around further Bank of Japan policy normalisation keep the yen highly sensitive to yield differentials and shifts in risk appetite.

Any sharp moves in USD-JPY could trigger broader adjustments across carry trades, global equities, and emerging-market FX. As a result, FX markets remain a key transmission channel for volatility during the week.

Commodities and Geopolitics: Energy Prices in Focus

Oil prices remain underpinned by geopolitical risks and supply-side uncertainty. Developments across key producing regions, combined with limited global spare capacity, continue to support risk premiums in crude markets.

While mixed global growth signals may temper demand-side optimism, supply risks remain a key upside factor for energy prices. Elevated oil prices continue to pose asymmetric inflation risks, complicating the policy outlook for central banks and influencing broader commodity and cross-asset sentiment.

Global Themes and Risk Drivers

Monetary-policy divergence remains a dominant global theme, particularly between the United States and Japan. FX volatility is expected to persist as markets respond to data-driven repricing. Inflation risks remain asymmetrical, with energy prices acting as a potential upside catalyst. Geopolitical developments and early-year portfolio repositioning continue to shape short-term market dynamics across asset classes.

Conclusion

Markets enter the 2–6 February period with full liquidity and heightened sensitivity to macroeconomic signals. While no major policy decisions are scheduled, the interpretation of labour-market, inflation, and growth data will be critical in shaping expectations for monetary policy in 2026.

In an environment defined by policy uncertainty, geopolitical risks, and increasingly conviction-based positioning, disciplined risk management and selective exposure remain essential. Investors should remain prepared for elevated volatility as markets refine their outlook for the year ahead.