IRAN: IAEA-No Signs Of Damage To Facilities Containing Nuclear Material

• Elsewhere, markets pounced on latest remarks from PM Takaichi regarding the yen as we approach the Japanese election, where she stated a weak currency can be a major opportunity for export industries. USDJPY rose to 155.51 recovery highs, narrowing the gap to firm resistance at 155.76, the 50-day EMA.
• Weaker risk sentiment then assisted a reversal back below 155, while Takaichi also sought to clarify her comments about the weak yen, emphasising that she only intended to argue for a need to create an economy that can withstand currency fluctuations.
• Sentiment polls are suggesting a comfortable lead for the LDP, which would solidify fiscal concerns as per Takaichi's expansionary agenda.
• US ISM Manufacturing data highlights the economic calendar Monday, notably following Friday's outperformance in the MNI Chicago PMI.

The latest round of sell-side notes that we have read continues to focus on the potential for cross-market outperformance and a bias for flattening re: gilts. Further forwards, there is a dovish bias in GBP STIRs heading into the upcoming MPC meeting (aided by the recent hawkish move), with Goldman Sachs initiating a long SFIU6 recommendation on Friday:

• Goldman Sachs: UK front-end yields have increased in recent weeks, boosted in part by incrementally stronger survey data and some degree of labour market stabilisation. We think there is compelling risk-reward to receive. Our economists expect further weakening in the labour market and a bigger inflation decline than the BoE forecast. This week’s BoE meeting will be an important test of the MPC’s assessment of the likelihood of further cuts, but we think the risks to current pricing are asymmetric - go long SFIU6. Although we think the rebuild of political risk and global spillovers to Gilts will prove temporary, we are closing our long Gilt vs ASW recommendation, for a gain of 12bp. We continue to recommend belly longs, which offer attractive carry, in cross-market expressions against short Bunds. The asymmetry for long positions arises from either front-end-led rallies, if activity weakens further, or via compressed risk premium if growth improves and reduces fiscal risks.
• J.P.Morgan: We expect the BoE to keep rates on hold at the February meeting at 3.75% with a 7-2 vote (Dhingra and Taylor dissenting dovishly) and no change to the forward guidance language. We also expect the BoE to keep the door open for a March ease both in the commentary and with near-term forecast revisions, although the MPC’s tone and messaging will likely be particularly sensitive to the outcome of the 2026 Agents pay survey.  We stay received Mar ‘26 MPC OIS from a risk-reward standpoint. We remove our fronts/reds SONIA curve flattening bias/ Keep tactical 2s/10s gilt curve flattener, with the curve remaining a few bp too steep on our RV framework. The directionality of the 2s/10s gilt curve with the 2s/10s U.S. curve has continued to decline and the political noise around Mayor Burnham as a potential parliamentary candidate has dissipated. 10-Year swap spreads look too wide vs. high frequency drivers.
• TD Securities: Markets are positioned for the BoE to remain on hold at the February meeting. Beyond this, conviction remains low, with markets currently pricing the next rate cut only around June 2026. The key focus for markets will remain the trajectory of inflation as well as the skew of votes/opinions. However, we also believe that the BoE will maintain a noncommittal approach on the pace of rate cuts. While this may disappoint markets, we believe this is already reflected in the front-end pricing. We continue to prefer being long the March MPC contract. We also remain constructive on duration and maintain our long 10-Year gilt position.

• The most recent price action for G10 currencies has remained a sideshow to the aggressive moves seen in the precious metals space. Moves this morning saw spot silver extend its decline from last Thursday’s peak to as much as 41%, while gold followed suit in plummeting 20% at its worst point as positional dynamics have exacerbated sentiment.
• Key questions surrounding how Fed Chair appointee Warsh is planning to square a smaller balance sheet with lower rates, and expectations for the government shutdown to resolve this week, are prompting the DXY to tread water, consolidating around 1.7% off last week’s cycle lows.
• This is further dampening the recent enthusiasm for EURUSD, which after spiking to 1.2080 early last week, now finds itself trading in a more stable manner around 1.1850. The move down signals potential for an extension towards 1.1793, the 20- day EMA. Support at the 50-day EMA lies at 1.1729.
• Appreciation of the Euro in recent weeks (particularly against the dollar) has reignited downside inflation concerns amongst more dovish GC members, which will be of interest ahead of this Thursday’s ECB decision and press conference.