USD: Dollar firm amid equity jitters, PPI hotter than expected
The latest round of US economic data suggests that the labor market has found its footing, reinforcing the narrative that the most severe period of softening is now in the rearview mirror. According to the latest Bloomberg terminal data, Initial Jobless Claims for the week ending February 21 came in at 212k, outperforming the 216k survey estimate. This resilience is mirrored in Continuing Claims, which dropped to 1833k, well below both the prior reading and market expectations, to hover near multi-year lows. When viewed alongside a 13-week moving average that remains below pre-pandemic levels, the data supports an upward trend for the labor force, likely outstripping the tepid job growth averages seen throughout 2025.
However, the path to a full recovery remains uneven as structural shifts and policy changes create a bifurcated landscape. While the Kansas City Fed Manufacturing Activity index surprised to the upside with a reading of 5 (beating the survey of 2), goods producers are grappling with renewed uncertainty following the SCOTUS decision on tariffs. Simultaneously, the rapid proliferation of AI agents is beginning to exert visible pressure on service providers most exposed to automation. While these technological advancements and fiscal tailwinds are expected to expand the overall economic pie, the current transition is not rewarding all sectors equally, creating a “k-shaped” sentiment among the American workforce that has translated into a cautious undertone across financial markets.
Adding to the complex macroeconomic puzzle is the latest Producer Price Index (PPI) print, which suggests that the “last mile” of the inflation fight remains stubbornly uphill. According to the data recently released, January’s PPI Final Demand MoM climbed 0.5%, overshooting the 0.3% survey estimate. Even more striking was the “Ex Food and Energy” component, which delivered a stinging 0.8% surprise against an expected 0.3%. This hotter-than-expected pipeline pressure indicates that the disinflationary trend seen in late 2025 may have hit a significant speed bump, as rising input costs for producers threaten to spill over into consumer prices in the coming months.
Against this backdrop of structural tension and industry-specific headwinds, the US Dollar (USD) has remained consistently bid throughout the week, even while confined to a narrow trading range with suppressed volatility. This “quiet strength” in the greenback serves as a direct reflection of the on-and-off anxiety permeating the equity markets, where a recent rout in chipmakers has kept investors on edge. Led by a 4% slide in Nvidia Corp. after its results failed to ignite further AI-driven euphoria, the Nasdaq 100 shed 1.2%, prompting a flight to the perceived safety of bonds and the USD. As geopolitical jitters involving US-Iran nuclear talks add another layer of complexity, the dollar continues to find support as the primary haven amidst Wall Street’s increasingly skeptical outlook on the tech sector’s growth trajectory.
CAD: Canadian GDP cools in Q4 as economy eyes Bank of Canada soft landing
The latest data from Statistics Canada paints a picture of a Canadian economy navigating a delicate transition as it closed out 2025. Real GDP declined by 0.2% in the fourth quarter (an annualized rate of -0.6%), marking a shift from the growth seen in the previous quarter. This dip was primarily driven by a significant “inventory hangover,” as businesses pulled back on stock levels following earlier accumulations. However, the headline contraction masks a degree of underlying resilience; while inventories weighed heavy, the economy found support from rising exports, steady government investment, notably in defense, and a surprising 0.4% uptick in household spending.
Despite the quarterly slip, the broader 2025 narrative remains one of modest, albeit slowing, expansion. The economy grew by 1.7% over the full year, its softest pace since the 2020 pandemic. Much of this cooling can be traced to manufacturing headwinds and shifting trade dynamics with the United States. Yet, December offered a glimmer of momentum, with the month alone seeing a 0.2% expansion fueled by a rebound in manufacturing and wholesale trade. This suggests that while the fourth quarter as a whole was sluggish, the engine started to rev again just as the year came to a close, providing a slightly firmer footing for the start of 2026.
This performance aligns closely with the Bank of Canada’s recent outlook, which has emphasized a “soft landing” scenario. The data confirms that the four interest rate cuts implemented by the Bank in 2025 are beginning to filter through to the pocketbooks of Canadians; notably, household interest payments fell by 4.4% for the year. By managing to cool the economy enough to dampen inflationary pressures without triggering a deeper recessionary spiral, the Bank appears to be successfully threading the needle. The fact that GDP per capita remained unchanged in Q4 suggests that while the “economic pie” isn’t growing rapidly, the aggressive rate-cutting cycle of 2025 has helped stabilize household disposable income and net savings.
Despite the miss on the annualized headline figure, the Canadian Dollar has seen minimal volatility, continuing to hover steadily around the 1.368 mark against the USD. Currency traders appear to be “looking through” the Q4 contraction, recognizing it as an inventory-driven technicality rather than a sign of structural decay. The stronger-than-expected 0.2% monthly growth in December and the Bank of Canada’s proactive stance have provided enough of a safety net to keep the Loonie anchored, as markets price in a balanced path for monetary policy moving forward.
GBP: Labour’s loss weighs on sterling
The UK’s Labour party has suffered a major blow in the Gorton and Denton by‑election, where the Green Party secured its first-ever Westminster by‑election victory, taking 40.7% of the vote. Reform UK came second with 28.7%, while Labour slumped to third place on 25.4%, overturning what had been a rock‑solid Labour seat. The loss has re-ignited speculation over the Labour leadership and has naturally weighed on the pound.
Interestingly, the pound briefly firmed on the news that the Greens — rather than Reform UK — had taken the Gorton and Denton seat, but those gains have since unwound, leaving GBP as the worst performer in the G10 this morning. GBP/USD slipped back to retest its 200‑day moving average near $1.3447, a level that has acted as a key support zone since December, but has since reclaimed $1.35 on broad-based USD weakness. GBP/EUR logged its fourth‑largest daily decline of the year yesterday and is now on track for a fourth consecutive weekly drop, with the price action suggesting further losses are more plausible than not.
Labour’s third‑place finish behind the Greens and Reform UK has sharpened questions around party leadership and voter sentiment ahead of May’s local elections. Starmer is expected to remain in place for now, and no immediate policy shift is anticipated, but a weak result in May could trigger internal pressure or a leadership challenge.
For markets, the by‑election outcome increases the risk of a shift toward a less predictable fiscal stance at a time when the UK’s fiscal headroom is already limited. Any move in that direction would raise uncertainty around the medium‑term tax and spending framework. Historically, such uncertainty has tended to lift gilt yields as investors demand a higher risk premium, while sterling typically softens if markets anticipate greater issuance or reduced clarity over the fiscal outlook.
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Calendar: February 23 – 27
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
