What are the Five Currency Pairs to Watch in February and Why?

Which currency pairs are the most interesting to consider as part of your forex trading strategy in February 2024? This article uses fundamental analysis and price action to explore the top 5 FX pairs to watch this month.

Forex Monetary Policy
5 min read
Craig Erlam
Craig Erlam
Contributing Author at OANDA

The year of interest rate cuts

It’s a new year, but the focus in FX markets remains on inflation and interest rates. The one difference compared with the last couple of years is that inflation is on the way down and interest rates are expected to follow. Central banks won’t all move at the same time, but there’s plenty of belief in the markets that, for some, the first rate cut could come as soon as the next meeting. That means the economic data will be heavily scrutinized, as will comments from policymakers and, of course, the monetary policy meetings themselves.

With that in mind, here are five currency pairs to look out for this month as part of your forex trading watchlist.

GBP/USD – Are markets too pessimistic about UK interest rates?

The Bank of England meeting is unlikely to throw up any surprises when it comes to the interest rate decision, but there’s every chance the vote and forecasts do. Inflation has been falling and is expected to fall much further again over the next few months, enabling the MPC to cut rates earlier than it would currently admit.

While forecasts have not been particularly reliable in accurately predicting the path of inflation, that doesn’t mean they aren’t useful. They offer insight into the current mindset of policymakers, not to mention what it may take from the incoming data to sway them from keeping rates unchanged to cutting them. And then there’s the vote itself, which will tell us just how many – and who – ultimately needs convincing. This could be a pivotal meeting for the BoE even without a rate move.

Source: tradingview.com, OANDA, 01/31/2024

The pound has been range-bound against the dollar since the middle of December as traders weigh up which central bank will take the leap first and how aggressively. In that time, cable has seen resistance around 1.28 and support around 1.26. A move through one of these could be a significant breakout for the pair.

EUR/USD – US jobs report and inflation data eyed ahead of March Fed meeting

There was a time when the FOMC believed a weakening of the labor market – and increase in unemployment - was necessary to return inflation sustainably to target. This is no longer the case, and so, while still important, there’s slightly less emphasis on the non-farm payrolls figure. As long as we don’t see another surge higher, policymakers will likely be quite at ease with the level of job growth we’ve been seeing. And from a markets perspective, the fairytale scenario of a strong economy alongside falling interest rates and 2% inflation is looking increasingly possible.

The wages component of the report is therefore arguably the most important element, as this feeds directly into inflation, particularly in the services sector, where it has been most sticky. A monthly reading of 0.3% or less could boost the prospect of a March rate cut, while anything higher may spook policymakers on the FOMC and make them think twice.

Ultimately, inflation will be the primary driver, and CPI data will be released in the middle of the month, followed by the PCE, the Fed’s preferred measure – on that final day of it. Further evidence of high rates pushing inflation closer to target could sway some more policymakers.

Source: tradingview.com, OANDA, 01/31/2024

The dollar has started the year strongly, pushing EUR/USD back from its highs at the end of 2023. It’s given back around 50% of the gains from the early October lows to the late December highs. This area could be interesting in determining whether price action this year is part of a broader dollar recovery or just a corrective phase in a more bullish setup.

AUD/USD – Will a hawkish RBA boost the Aussie further?

The Reserve Bank of Australia is expected to be at the back of the queue when it comes to major central banks cutting interest rates. Markets expect the first won’t come until late in the summer at the earliest, while many economists expect it will be much later. Inflation remains well above the central bank’s 2-3% target, and wage growth is still rising, which doesn’t bode well for the RBA.

Interest rates will continue to have a dampening effect on both, but for many reasons, there is a view that rate cuts are still some way off. The upshot is that the cash rate is only at 4.35%, so the first 100 basis points of cuts from the Fed will only bring it in line with its Australian counterpart.

Source: tradingview.com, OANDA, 01/31/2024

The Australian dollar has rallied strongly against the dollar since early October before paring gains in the opening month of the new year. It’s fallen back to a region that could offer strong clues as to whether price action this year has been corrective or part of a broader decline.

NZD/USD – Will the RBNZ maintain a hawkish stance on interest rates?

The Reserve Bank of New Zealand is among the central banks that is expected to be cutting rates this year but it’s not exactly near the front of the queue. In fact, until recently many thought 2025 would be the year that the RBNZ would join the party and there may be some that still do.

But markets are of the view, based on recent inflation (4.7% in Q4, down from 5.6% in Q3) and GDP data, that the first rate cut will come this year, probably in July. While that likely doesn’t make the meeting in February “live”, it will generate interest around whether policymakers are starting to have the conversation.

There’s still some way to go before inflation falls within the 1-3% target range and Governor Adrian Orr has stressed that core inflation is the big challenge facing the central bank but traders will be interested to hear how close it believes it is to achieving its goal and whether a rate cut in July is a realistic possibility.

Source: tradingview.com, OANDA, 01/31/2024

NZD/USD has drifted lower since the turn of the year in what could be corrective after a strong end to 2023. But the trend prior to this going back to early 2021 has been quite bearish so a rotation higher from here and above the late-December peak would be very significant.

USD/JPY – Intervention talk to return after a new year rebound?

We’re probably still at least a couple of months away from the Bank of Japan deciding whether the time has come to lift rates back into positive territory but that doesn’t mean we won’t see any action in the currency until then. Quite the opposite, potentially. The yen has fallen strongly this year on the basis of inflation falling, putting any BoJ hike into doubt. It’s gone back to levels that were previously associated with intervention speculation and further weakness could lead to more of the same.

Source: tradingview.com, OANDA, 01/31/2024

The dollar has rallied strongly in January, recovering the bulk of the losses suffered since mid-November. It remains a little way from that peak and a move back towards here could see intervention nerves creep in and volatility pick up.


Now that you've taken a detailed look at some of the currency pair options to consider as part of your FX strategy, you may want to learn more about trading forex with OANDA.


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