Jobs Data & Eurozone Inflation Set the Tone for FX Markets.
Summary
A US and Israeli military strike on Iran over the weekend has triggered a sharp rise in oil prices and increased volatility across global markets, adding a significant new layer of uncertainty to the week ahead
US non-farm payrolls for February are the week's headline data event, with markets watching for signs of whether January's stronger-than-expected print was a turning point or a one-off
The Eurozone flash CPI for February, due Tuesday, will test whether the disinflation trend has continued after January's confirmed 1.7% annual rate
Sterling faces a quieter week on domestic data but remains sensitive to shifting BoE rate-cut expectations and broader geopolitical risk
Over the weekend, the United States and Israel launched military strikes on Iran, targeting key leadership figures. Iran retaliated with missile and drone strikes across the region, drawing the Middle East into a significant new conflict. President Trump indicated the campaign could last several weeks. Markets opened Monday in risk-off mode, with equity markets falling, oil prices rising sharply and demand for safe-haven assets increasing.
The direct implications for currency markets are meaningful. A sustained rise in oil prices adds inflationary pressure globally, complicating the path for central banks that had been moving toward easing. The US dollar has firmed modestly as a safe-haven play, though analysts note its sensitivity to risk sentiment has shifted in recent months. The euro and other risk-sensitive currencies face headwinds if the conflict widens or energy supply routes are disrupted.
January's non-farm payrolls surprised to the upside, with the economy adding 130,000 jobs against a consensus forecast of 70,000. Unemployment edged down to 4.3%. That came alongside significant downward revisions to 2025 data, which cut full-year job creation to approximately 181,000, the weakest annual total in years. The picture heading into February's report, due Friday, is therefore mixed: headline momentum improved, but the underlying trend through 2025 was softer than markets had assumed.
The Federal Reserve held rates steady at 3.50% to 3.75% in January, and Chair Powell's term runs through May. With the Fed's preferred inflation measure already at 3% and rising oil prices adding further upward pressure, the case for near-term rate cuts has weakened further. Friday's payrolls figure will be watched closely for any additional shift in policy expectations.
Monday's ISM Manufacturing PMI for February came in at 51.8, easing from January's 52.6 but remaining in expansion territory for the second consecutive month. Wednesday brings the ISM Services PMI alongside the ADP employment report, which will serve as a preview of Friday's official jobs data. ADP reported just 22,000 private sector jobs in January, a sharp contrast to the BLS figure.
The single currency enters March having absorbed confirmation that Eurozone inflation fell to 1.7% in January, below the ECB's 2% target. Core inflation eased to 2.2%. Tuesday's flash estimate for February is forecast at 1.7% year-on-year, in line with January. National data released ahead of the Eurostat print has been broadly consistent with that picture. A sustained rise in energy costs driven by the Middle East conflict, however, could complicate the Eurozone's disinflation trajectory in the months ahead.
There are no major UK data releases this week. The Bank of England's next scheduled decision is on 19 March. Markets have trimmed rate-cut expectations in recent sessions, with the probability of a March cut falling from over 80% to around 64%, with geopolitical uncertainty and its potential inflationary consequences a key factor in that repricing.
Chancellor Rachel Reeves delivers the Spring Statement to Parliament on Tuesday, alongside an updated OBR economic and fiscal forecast. Sterling will be attentive to any fiscal signals that alter the domestic growth or inflation outlook, while remaining sensitive to the broader global risk environment.
Events to Watch This Week
Monday 2 March: US ISM Manufacturing PMI (February)
Tuesday 3 March: Eurozone Flash CPI (February); UK Spring Statement
Wednesday 4 March: ADP Employment Report (February); US ISM Services PMI (February)
Friday 6 March: US Non-Farm Payrolls (February); US Unemployment Rate (February)
With geopolitical risk, US jobs data and Eurozone inflation all converging in the same week, the potential for sharp currency moves is elevated. Businesses with upcoming international transfers should be reviewing their exposure carefully. Contact the Orbis dealing team for guidance on timing and execution.
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