LIVE MARKETS-Policy uncertainty not confined to the dollar

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POLICY UNCERTAINTY NOT CONFINED TO THE DOLLAR

Political developments have been major drivers of markets so far in 2026, and the fun thing about currency markets is, because they show relative moves, we get to see which country's politics are spooking investors more.

HSBC's global head of currency research Paul Mackel points out in a Monday note that the dollar index "remains low versus its weighted rate differential," which implies "U.S. policy uncertainty has kept the currency in a soft position."

But, he continues, "Policy uncertainty is not confined to the (dollar)," and so that gap between the dollar index and rate differentials could narrow "if markets become unsettled over the state of politics in Japan and the UK and their respective fiscal outlooks.

In Britain, Prime Minister Keir Starmer is under serious pressure, and, with this coinciding with markets expecting more easing from the Bank of England, the pound is looking vulnerable.

Meanwhile, the big story of the day so far is Japan after PM Sanae Takaichi's big election win set her up to deliver tax cuts, potentially weighing on both Japanese government bonds, and the yen.

So, what have we seen so far? (Accepting, as Kit Juckes Société Générale's chief FX strategist flags, "Monday morning FX moves are a notoriously unreliable indicator of what happens over the week".)

Well, certainly the yen seems happy enough. The dollar is down 0.5% on the Japanese currency at 156.4 yen, its biggest daily fall in February so far. JPY=

ING's global head of markets, Chris Turner, reckons the risk to markets betting on yen and Japanese government bond weakness "is that instead of this being a 'Sell Japan' story from the JGB side, it evolves into a 'Buy Japan' story on a government with a clean mandate to deliver growth."

But, "It may be too early to conclude the latter just yet," he adds.

The pound is also a bit stronger on the dollar as well up 0.26% at $1.3648. GBP= Maybe policy uncertainty is still greater in the U.S.?

The other winner of the day seems to be the euro, which is flat on the yen, up 0.3% on the pound, and 0.5% on the dollar. EURJPY=, EURGBP=, EUR=

Maybe that's where the political stability lies.

(Alun John)

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