The US dollar rose to a two-week high on Thursday, as volatility returned strongly to equity and precious metals markets, while traders awaited upcoming interest rate decisions from the European Central Bank and the Bank of England.

The dollar index, which measures the US currency against a basket of six major currencies, rose by 0.14% to 97.82, recording gains for a second consecutive session.

Sim Moh Siong, FX strategist at OCBC in Singapore, said: “There is a degree of risk aversion showing up in markets. When risk avoidance dominates, the dollar tends to strengthen.”

The dollar regained some strength this week, while equities shifted into risk-off mode as financial markets assessed the US earnings season, which has now reached its midpoint.

Gold and silver — which have recently experienced elevated volatility driven by leveraged buying and speculative flows — came under renewed selling pressure on Thursday, with silver falling by as much as 16.6% to a low of $73.41 per ounce.

The Nasdaq Composite has fallen 2.9% over the past two days, its biggest drop since October, amid volatility driven by market leaders including Alphabet, Google’s parent company, which announced ambitious spending plans on Wednesday, alongside a sharp selloff in software stocks adjusting to the new era of generative AI.

The European Central Bank in focus

The euro fell by 0.2% to $1.1790 ahead of the European Central Bank decision, which is widely expected to leave interest rates unchanged. Investor focus will be on the post-decision press conference for signals about the policy outlook in the coming months.

Markets currently assign a very low probability to any rate cuts this year. Despite the volatility seen since the start of the year, the euro remains only about 0.4% above its level at the time of the ECB’s last meeting in December.

However, the euro is still up about 13% against the dollar compared with last year, raising some concern among policymakers about the impact on regional price pressures, as eurozone inflation has eased to around 1.7%, below the ECB’s 2% target.

Lee Hardman, currency strategist at MUFG, said: “We expect the ECB to keep rates unchanged through 2026, but we see the risks tilted toward further cuts rather than hikes, as inflation is likely to undershoot the target.”

Sterling fell by 0.5% to $1.358 ahead of the Bank of England’s policy decision, which is also expected to keep interest rates unchanged.

Late Wednesday, Federal Reserve Governor Lisa Cook said in a speech that she is more concerned about stalled progress on reducing inflation than about labor market weakness — a strong signal that she would not support another rate cut until tariff-related price pressures begin to fade.

US interest rate futures are pricing an 88% implied probability that the Federal Reserve will keep rates unchanged at its next two-day meeting ending March 18, while bets on a rate cut rose to 12% from 9.4% a day earlier, according to CME’s FedWatch tool.

Against the Japanese yen, the dollar rose 0.14% to 157.11 yen. Earlier threats of joint US–Japan intervention to support the yen on January 23 had pushed the dollar down to a three-month low of 152.1 yen. With tensions rising ahead of Sunday’s election, the dollar has climbed about 3%, recovering roughly three-quarters of that earlier decline.

Against the offshore Chinese yuan, the dollar held steady at 6.9439 following a phone call between President Donald Trump and Chinese President Xi Jinping, during which they discussed trade, security, and US arms sales to Taiwan.

In cryptocurrency markets, prices continued to slide to their lowest levels since November 2024. Bitcoin fell by as much as 3.54% to $70,052.48 at one point before trimming losses to 1.7% at $71,720. Ether held near $2,135 after rebounding from an overnight low of $2,068.

Gold prices fell on Thursday, while silver dropped by more than 11% as speculators moved to take profits after a two-day rally, with a stronger dollar and easing geopolitical tensions increasing pressure on precious metals as safe-haven assets.

Spot gold declined by 2% to $4,864.36 per ounce as of 09:20 GMT, after falling more than 3% earlier in the session. US April gold futures also dropped by 1.3% to $4,855.80 per ounce.

Spot silver fell by 11.3% to $78.13 per ounce, after dropping by around 17% earlier in the session.

Carsten Menke, an analyst at Julius Baer, said: “This is a delayed effect of the volatility we have seen since last Friday. The market has not yet reached an equilibrium point, which is why we are seeing a new wave of selling after the rebound of the past two days.”

He added that volatility is likely to continue in the short term.

Precious metals have seen sharp moves in recent sessions, with gold and silver recording their biggest losses in decades last Friday after reaching record highs earlier in the same week.

Gold extended its losses to $4,403.24 on Monday, while silver fell to $71.32, their lowest levels in a month, after former Federal Reserve governor Kevin Warsh was nominated to lead the US central bank, easing fears of an overly loose monetary policy stance and supporting the dollar.

However, renewed concerns over escalating tensions between the United States and Iran on Tuesday pushed investors back toward safe-haven assets, lifting metal prices over the past two sessions.

Ole Hansen, Head of Commodity Strategy at Saxo Bank, said: “Heavy selling appeared in the Chinese futures market and on the CME after silver failed to break the resistance level at $90.50.”

He added that weak Chinese demand ahead of the Lunar New Year holiday, along with reports of large short positions by a Chinese investor, worsened market sentiment.

The dollar rose to its highest level in two weeks on Thursday, adding pressure on broader markets, as global equities and commodities — from crude oil to copper — declined with easing geopolitical tensions.

In other metals, spot platinum fell by 6.5% to $2,082.76 per ounce, after having recorded a record high of $2,918.80 on January 26. Palladium also declined by 3.5% to $1,711.69 per ounce.

The euro fell in European trading on Thursday against a basket of global currencies, extending its losses for the second consecutive day against the US dollar and approaching its lowest level in two weeks, as easing inflation pressures on European Central Bank policymakers revived expectations of at least one European interest rate cut this year.

The European Central Bank is due later today to conclude its first monetary policy meeting of 2026, with expectations pointing to another hold in interest rates for the fifth consecutive meeting. The upcoming statement is expected to provide further signals and clarification about the future path of interest rates during this year.

Price Overview

• Euro exchange rate today: The euro fell against the dollar by 0.2% to $1.1783, from an opening level of $1.1807, and recorded a session high at $1.1808.

• The euro ended Wednesday down by 0.1% against the dollar, resuming losses that had paused the previous day as part of a rebound from a two-week low at $1.1776.

Inflation in Europe

Official data released yesterday showed continued easing in core inflation levels in Europe, highlighting reduced inflationary pressures on European Central Bank policymakers.

The headline consumer price index rose by 1.7% year-on-year in January, the slowest pace since September 2024, in line with market expectations of a 1.7% increase, after a 1.9% rise in December.

Core CPI rose by 2.2% in January, the slowest pace since October 2021, below market expectations of 2.3%, after registering 2.3% in December.

European Interest Rates

• Following the above data, money market pricing for a 25 basis point rate cut by the European Central Bank in March increased from 25% to 35%.

• Traders adjusted their expectations from keeping European interest rates unchanged throughout the year to pricing in at least one 25 basis point cut.

European Central Bank

The European Central Bank will conclude later today its first regular monetary policy meeting of 2026, with expectations steady for no change in interest rates. The accompanying statement is expected to offer additional guidance on the future interest rate path over the course of the year.

Expectations are currently stable for keeping European interest rates unchanged at 2.15%, the lowest level since October 2022, for the fifth straight meeting.

The ECB interest rate decision and policy statement are due at 13:15 GMT, followed by a press conference from ECB President Christine Lagarde at 13:45 GMT.

Outlook for the Euro

We expect that if the European Central Bank’s remarks come in less hawkish than markets anticipate, expectations for rate cuts this year will increase, leading to further negative pressure on the euro’s exchange rate against a basket of global currencies.

The Japanese Yen fell in Asian trading on Thursday against a basket of major and minor currencies, extending its losses for the fifth consecutive day against the US dollar and recording its lowest level in two weeks, under pressure from rising speculation about the outcome of Japan’s general election due this weekend.

According to the latest opinion polls in Tokyo, the ruling coalition led by Prime Minister Sanae Takaichi is strongly ahead to secure control of the House of Representatives, which would give the new government a green light to move forward with expansionary plans to stimulate the economy.

Price Overview

• Japanese yen exchange rate today: The dollar rose against the yen by 0.1% to ¥156.98, the highest level since January 23, from an opening level of ¥156.81, and recorded a session low at ¥156.68.

• The yen ended Wednesday trading down by 0.7% against the dollar, marking its fourth consecutive daily loss, driven by election-related speculation.

Japanese Elections

Global markets are turning their attention to Japan ahead of the early general election scheduled for February 8, as Prime Minister Sanae Takaichi seeks voter support for higher spending, tax cuts, and a new security strategy expected to accelerate the strengthening of the country’s defense capabilities.

Opinion Polls

The latest polls indicate a sweeping lead for the ruling Liberal Democratic Party led by Sanae Takaichi, boosting her chances of forming a strong government after the election.

Surveys by Asahi newspaper and Kyodo News suggest the ruling coalition is heading for a decisive victory, with the Liberal Democratic Party expected to exceed the absolute majority threshold of 233 seats, and the coalition with partners potentially reaching around 300 seats out of 465.

Takaichi continues to maintain solid popularity, with recent polls showing government approval ratings between 57% and 64%. Her support is especially strong among younger voters aged 18–29, where approval in some surveys approaches 90%.

Sanae Takaichi

Japanese Prime Minister Sanae Takaichi said on Saturday that yen weakness has positive aspects, in remarks that appeared to contrast with repeated warnings from the Ministry of Finance about possible intervention to support the currency.

During a campaign speech ahead of next week’s election, Takaichi said that despite criticism of the weak yen, it represents a valuable opportunity for export sectors, from food industries to automobiles, as the weaker currency has acted as a buffer against US tariffs and provided tangible support to the economy.

Japanese Interest Rates

• Market pricing for a quarter-point rate hike by the Bank of Japan at the March meeting currently stands below 10%.

• To reprice those expectations, investors are waiting for more data on inflation, unemployment, and wages in Japan.

Outlook for the Japanese Yen

Carol Kong, currency strategist at Commonwealth Bank of Australia, said that a strong performance by the Liberal Democratic Party would encourage Takaichi to push ahead with stimulus plans, increasing the risk of a heavier government debt burden and weighing negatively on Japanese government bonds and the yen.