Bitcoin Extends Selloff as Macro Pressures and Leverage Unwind

The European Central Bank (ECB) has decided to keep its key deposit rate steady at 2.00%, a move widely anticipated by markets and analysts. In her statements, President Christine Lagarde chose to highlight the economy's bright spots, such as low unemployment, while downplaying concerns over slowing inflation and a stronger euro.

This analysis maintains the forecast that the ECB will hold the deposit rate at 2.00% through both 2026 and 2027.

Economic Strengths Over Inflation Worries

The ECB's official press release was brief and echoed its December guidance. The bank's commentary focused on positive economic indicators, including robust private balance sheets, rising public spending, and a tight labor market. This optimistic framing came even as inflation fell to 1.7% in January.

During the subsequent press conference, Lagarde continued this narrative, giving little attention to negative factors like trade tariffs. She attributed the recent drop in inflation primarily to energy base effects and other one-off factors. Lagarde stressed that underlying inflation indicators remain stable and that most medium-term inflation expectations are anchored at the 2% target.

She also noted that the ECB has long projected inflation to be below 2% in 2026. The 1.7% figure for January, while lower than December's projection, was consistent with September's staff forecasts. This signals a clear preference for maintaining the current deposit rate, even with inflation currently below target.

Figure 1: Eurozone inflation trends show headline inflation dipping below the ECB's 2% target, a key factor in the bank's recent policy discussions.

Lagarde Unfazed by Stronger Euro

Addressing the euro's exchange rate, Lagarde clarified that the ECB does not target specific rates but does acknowledge their impact on inflation. She confirmed that the governing council had discussed the euro's movements, particularly against the U.S. dollar.

However, she observed that the appreciation has been ongoing since March and that recent developments have not triggered any specific concerns. Lagarde stated that the impact of a higher EUR/USD is already incorporated into the bank's baseline projections. Her overall tone on the currency's strength was neutral, effectively downplaying its significance as expected.

What's Next? Repo Line Reforms on the Horizon

Lagarde also signaled that the ECB is preparing to reframe its repo lines, with a formal announcement expected within days. The goal is to improve access and make these facilities more attractive to national central banks located outside the euro area and Europe, enhancing their global utility.

Forecast: No Rate Changes Through 2027

Looking ahead, the forecast remains for the ECB to hold its deposit rate at 2.00% throughout 2026 and 2027. The combination of better-than-expected growth and declining unemployment reduces the pressure for rate cuts in 2026, despite inflation running below the bank's target.

Figure 2: A steady decline in the unemployment rate underpins the ECB's confidence in the economy's underlying strength.

At the same time, with inflation also projected to stay below target in 2027, rate hikes are considered unlikely. From a strategic perspective, this outlook—combining a positive growth forecast, a tight labor market, and increased public spending in countries like Germany—supports a payer bias in the short end of the EUR swap curve.

The Bank of England (BoE) has held its key interest rate steady at 3.75%, but a surprisingly close 5-4 vote has signaled a dovish shift, increasing the likelihood of future rate cuts.

While the decision to maintain the Bank Rate was expected, the narrow margin suggests the Monetary Policy Committee (MPC) is more divided than anticipated. This development has raised market expectations for a rate cut as early as March, though the final outcome will depend heavily on two upcoming labor market reports and inflation prints.

A Surprisingly Divided Monetary Policy Committee

Four members of the committee dissented from the decision, voting instead to lower rates. The dissenters were Dhingra, Taylor, Ramsden, and Breeden.

The votes from Ramsden and Breeden were particularly noteworthy, as recent economic data had, if anything, pointed toward a more hawkish stance since the December meeting. Both members cited new analysis in the latest monetary policy report as a key factor in their decision, highlighting that structural changes in wage-setting are no longer expected to add significant inflationary pressure.

BoE Forecasts Weaker Growth and Slower Inflation

The Bank of England's new monetary policy report paints a distinctly more dovish picture of the UK economy. Compared to its November projections, the BoE now anticipates lower GDP growth, higher unemployment, and softer inflation.

Key forecast revisions include:

• CPI Inflation: Now projected to be 1.7% in the first quarter of 2027, down from the previous forecast of 2.2%.

• Annual GDP Growth: Revised downward by 0.3 percentage points to 1.2%.

Contrasting Signals from Recent Economic Data

This cautious outlook from the BoE contrasts sharply with recent PMI data, which suggests a more robust economy. The composite PMI recently hit its highest level in three years, and price indices within the report indicate that inflationary pressures could be more sustained. Upcoming data will be crucial in clarifying which of these conflicting signals more accurately reflects the state of the UK economy.

Figure 1: Recent UK PMI data shows a strengthening economy, with the composite index at a three-year high, contrasting with the Bank of England's more cautious economic forecast.

Outlook for UK Rates and the British Pound

The timing of the next rate cut appears to rest heavily on Governor Andrew Bailey, who has indicated a readiness to ease policy. Bailey noted that the two cuts currently priced in by markets seem fair.

While the timing will ultimately hinge on incoming data, the bar for further cuts has likely been raised as the Bank Rate approaches neutral levels. A first rate cut is projected for April, with another potentially following in November.

In currency markets, the EUR/GBP pair traded higher following the announcement, supporting expectations for a weaker pound. The forecast for EUR/GBP is 0.89 over a 12-month horizon, driven by narrowing interest rate differentials, a relatively weaker growth outlook for the UK, and a positive correlation to a weaker U.S. dollar environment.

Bitcoin's price has dropped below the $71,000 mark, wiping out all gains accumulated since President Donald Trump's 2024 re-election. The leading cryptocurrency plunged over 7% on Thursday, extending a sharp decline that began in mid-January.

As of 04:30 GMT, Bitcoin was trading around $70,900. This latest slide brings the digital asset's total loss to nearly 20% since the start of the year.

From All-Time Highs to a Steep Correction

The current downturn follows a period of extreme volatility. Bitcoin first crossed the $100,000 threshold in December 2024 and revisited that price point in both February and May 2025. However, the asset has been on a largely downward trajectory since hitting an all-time high of more than $127,000 in October.

The earlier bull run was fueled by President Trump's re-election, which sparked market expectations for a lighter touch on digital asset regulation after years of government crackdowns.

Regulatory Hurdles and Political Scrutiny

During his campaign, Trump pledged to make the U.S. the world's cryptocurrency capital. Before winning the vote, he and his sons launched their own crypto firm, World Liberty Financial. Shortly after taking office, the administration announced plans for a strategic crypto reserve that would include Bitcoin and four other cryptocurrencies.

Despite these pro-crypto signals, a Trump-backed bill to regulate cryptocurrency trading has stalled in the U.S. Senate. Disagreements between traditional banks and crypto firms have created a legislative deadlock, casting a shadow of uncertainty over the industry.

Adding to market jitters, Democratic lawmaker Ro Khanna announced on Wednesday that he would investigate World Liberty Financial. The move followed a report from The Wall Street Journal stating that representatives of an Abu Dhabi official had signed a $500 million deal to acquire a 49 percent stake in Trump's new crypto venture.

Broader Markets Feel the Pressure

The negative sentiment was not confined to crypto. Equities and commodities markets also posted significant losses on Thursday, indicating a wider risk-off mood among investors.

• Silver: Dropped by as much as 16%.

• Hong Kong Stocks: The benchmark index fell by approximately 1.3%.

• Japanese Stocks: The benchmark index declined by about 0.7%.

A diplomatic dispute has erupted between the United States and Poland after the U.S. ambassador in Warsaw, Tom Rose, announced he was cutting off all contact with Poland's parliament speaker. The move followed the speaker's public criticism of Donald Trump and his refusal to support a Nobel Peace Prize nomination for the former president.

The sharp exchange, which played out on the social media platform X, prompted a direct response from Polish Prime Minister Donald Tusk and exposed deep political divisions within Poland over its relationship with Washington.

The Spark: A Nobel Nomination Rejected

The conflict began on Monday when Parliament Speaker Wlodzimierz Czarzasty declared he would not back an initiative to nominate Donald Trump for the 2026 Nobel Peace Prize. The proposal, spearheaded by U.S. House Speaker Mike Johnson and Israeli Knesset Speaker Amir Ohana, cited Trump's efforts to foster peace in the Middle East.

Czarzasty, who leads The Left party in Poland's ruling coalition, was unequivocal in his opposition.

"In my opinion, President Trump is destabilising the situation in these (international) organisations by representing the politics of force and using force to pursue a transactional policy," he told journalists. "All of this means that I will not support President Trump's Nobel Prize nomination because he doesn't deserve it."

Ambassador Responds with a Diplomatic Freeze

On Thursday, Ambassador Rose issued a furious public rebuke, stating that Washington would cease all engagement with the speaker.

"Effective immediately, the United States will have no further dealings, contacts, or communications with Mr. Czarzasty," Rose wrote on X. He accused the speaker of directing "outrageous and unprovoked insults" at Trump, calling him "a serious impediment to our excellent relations with Prime Minister Tusk and his government."

Rose added: "We will not permit anyone to harm U.S.–Polish relations, nor disrespect (Trump) who has done so much for Poland and the Polish people."

In his own post on X, Czarzasty said he regretted the ambassador's reaction but affirmed he would not change his position on fundamental issues.

Tusk Fires Back, Exposing a Political Rift

The ambassador's statement drew a pointed reply from Polish Prime Minister Donald Tusk, who pushed back against the American envoy's tone.

"Mr. Ambassador Rose, allies should respect, not lecture, each other. At least this is how we here in Poland understand partnership," Tusk wrote.

The incident also highlighted the starkly different approaches to the U.S. between Tusk's pro-European government and Poland's nationalist opposition, which is more aligned with Trump's "Make America Great Again" movement.

Rafal Leskiewicz, a spokesman for Polish President Karol Nawrocki, sided with the U.S. ambassador, telling the PAP news agency that the speaker's comments were a mistake. "The current ruling coalition chose as parliamentary speaker a man who does not understand the importance and significance of alliances," Leskiewicz said.

Politics in Haiti has become a lethal game. The country's last elected president, Jovenel Moïse, was assassinated by mercenaries in 2021, plunging the nation into a spiral of extreme gang violence. Since then, thousands have been killed or abducted as criminals seized control of roughly 90% of the capital, Port-au-Prince, bringing legitimate economic activity to a standstill.

Now, a new crisis looms as the country faces the prospect of having no government at all. The Transitional Presidential Council (TPC), established to steer the nation, was scheduled to dissolve on February 7, but vicious infighting has erupted over who will hold power next. This internal conflict not only threatens Haiti's future but also the fate of a planned United Nations security mission.

A Transitional Council in Turmoil

The TPC was formed in April 2024 out of negotiations led by the Caribbean Community (Caricom) after gangs physically prevented then-interim president Ariel Henri from returning to Haiti. With the parliament already dissolved in 2020, the council was meant to provide stability until new elections could be held. The original goal was to hold a vote in late 2025 and seat a new government by February 8, 2026.

That plan has completely unraveled. The TPC has been paralyzed by political maneuvering and efforts by its members to protect armed allies and secure resources. Its first prime minister, Gary Conille, was forced to resign after just six months.

More recently, several council members attempted a palace coup to oust Prime Minister Alix Didier Fils-Aimé while proposing a new, smaller council that would conveniently include them. The threat of council members mobilizing gangs to intimidate rivals and the international community is palpable.

The United States has responded by parking a warship and three coast guard cutters off the Haitian coast. It also imposed visa restrictions on five TPC members. In late January, US Secretary of State Marco Rubio stated he had spoken with Fils-Aimé, emphasizing "the importance of his continued tenure" to fight "terrorist gangs and stabilize the island." Rubio added that the TPC "must be dissolved by February 7 without corrupt actors."

Gang Violence Strangles Elections and the Economy

The council’s failure to establish basic security has had devastating consequences. According to UN Secretary General António Guterres, 8,100 people were killed between January and November 2025 alone in the nation of 11 million—a 20% increase from 2024. Sexual violence has also surged.

This chaos has made holding credible elections impossible. The prevailing view is that any attempt to organize a vote would allow gangs to formally take over the government, whether through coercion, campaign support, or by running their own candidates. With the interim government's own future uncertain after February 8, even an updated plan for elections in late 2026 appears highly unrealistic.

The economic toll has been staggering. The World Bank estimates that by 2024, the crisis was costing Haiti nearly $10 billion a year in lost economic activity, with small and medium-sized enterprises hit particularly hard.

UN Mission at Risk Without a Stable Partner

The political vacuum directly jeopardizes a critical UN mission designed to deploy an 11,000-strong multinational Gang Suppression Force (GSF). The force's objective is to crack down on gang leaders and retake control of vital infrastructure like transportation hubs. However, such a mission cannot succeed without an effective and credible government partner in Haiti.

Even if a new governing authority is hastily assembled, it is unlikely to have broad support. For decades, a recurring pattern in Haiti has seen corrupt political and business figures who are shut out of power use their gang contacts to create chaos. This "street veto" effectively cripples any new government before it can begin its most urgent task: reforming Haiti's security and judicial systems.

A viable long-term solution requires more than just military action. It demands a complete overhaul of Haiti's police, military, and intelligence services, alongside a fair and efficient court system to deliver justice and accountability for the brutal crimes committed daily.

A Global Funding Crisis Looms

Compounding Haiti’s internal problems is a sharp decline in global development funding. With the US Agency for Development (USAID) abolished by the Donald Trump administration and subsequent aid cuts by the UK, Canada, and the EU, critical resources are drying up.

This funding shortfall could prove fatal. Programs essential for long-term stability—such as disarmament, demobilization, and reintegrating former gang members into society—will likely have scant resources. Without projects to rebuild communities and generate jobs, there is no legal alternative to a life of crime, and many will simply return to violence.

With traditional aid shrinking, new approaches are needed. This could include direct country donations to the UN trust fund for Haiti, closer collaboration between private philanthropies and development banks, and better leveraging of remittances from the Haitian diaspora. But these initiatives require coordination, likely through a major donors' conference for Haiti—an event no one has yet offered to host.

XRP falls out of bed

Source: ig