WASHINGTON, February 12, 2026 — A surprisingly robust January jobs report is giving the Federal Reserve breathing room to pause interest rate hikes, but the global currency landscape is far from settled. The U.S. added 130,000 jobs last month, a figure bolstered by increased demand for healthcare as the population ages, and the unemployment rate dipped to 4.3%.
Fed on Pause, Yen on the Rise, Pound in Peril
Currency markets are reacting to shifting economic winds, with the dollar’s strength impacting global exchange rates.
- The probability of a Fed rate cut in April has fallen to 22%, with June seeing a 58% chance.
- Japan’s yen is gaining confidence amid capital repatriation, while the British pound faces headwinds.
- Donald Trump’s calls for lower borrowing costs are unlikely to sway the Fed’s independent course.
The strong U.S. labor market data has cooled expectations for immediate monetary policy easing. The chances of a Federal Reserve rate cut in April now stand at 22%, decreasing to 58% for June. Consequently, the dollar has strengthened, impacting other major currencies.
Beyond the headline number, the stabilization of the labor market is evident in the reduction of the unemployment rate to 4.3%, alongside figures for part-time employment and long-term unemployment. This provides the Fed with justification to hold rates steady, having already implemented three pauses in 2025 to avoid stifling economic growth.
Meanwhile, former President Donald Trump has publicly advocated for interest rate cuts to alleviate the burden of national debt servicing. While the White House continues to echo this sentiment, a sustained pause in monetary tightening is expected as long as the Fed maintains its independence, which would favor those betting against the EURUSD.
The dollar’s ascent is offering some support to USDJPY bulls, partially fueled by the carry trade. However, BCA Research points to historical precedents – 2008, 2015, and 2020 – where unwinding carry trades amid global risk aversion or a stronger dollar led to declines in the USDJPY pair.
The Japanese yen is receiving a boost from renewed confidence in the financial system under Sanae Takaichi, which is expected to encourage Japanese residents to repatriate capital. Additionally, the strong performance of Asian indices is attracting foreign investment. Despite this, the significant interest rate differential between the Fed and the Bank of Japan continues to support USDJPY buyers.
Citigroup analysts predict that the British pound will face increasing pressure in the second quarter, citing a “double whammy” of heightened political risks and anticipated easing of monetary policy by the Bank of England. The pound was one of the biggest losers following the positive U.S. employment data.
Gold’s attempt to break through the $5,100 per ounce level was thwarted by the positive U.S. labor market news, but its overall stability suggests continued speculative interest.
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