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GBP
Sterling supported by domestic momentum
Sterling opens the week on firm footing, with GBP/USD holding near $1.3660, marking its strongest level since September 2025. The advance reflects a clear repricing of UK macro resilience following December data that materially exceeded expectations.
UK Retail Sales rose 0.4% month-on-month, reversing November’s contraction and defying forecasts for a decline. Core Retail Sales, excluding fuel, also surprised to the upside, signalling more durable consumer demand. This momentum was reinforced by the UK Composite PMI climbing to 53.9, a 21-month high, confirming expansion across services and manufacturing.
Collectively, these releases have shifted market expectations around the Bank of England’s policy path. While rates are still expected to remain unchanged at the February meeting, markets continue to price a first 25bp cut by June. However, the probability of further near-term easing has diminished, lending structural support to Sterling.
Attention now turns to the US macro calendar, with Durable Goods Orders and the Federal Reserve’s policy decision later this week. The consensus remains for rates to be held steady, though any recalibration of forward guidance could influence near-term GBP/USD dynamics.
Weekly Data:
No Major Data
EUR
Strength by association, with limits emerging
The Euro trades constructively but without clear conviction. GBP/EUR has fallen toward €1.1520, snapping a three-day increase, while EUR/USD remains supported above recent technical breakouts.
Eurozone data continues to present a mixed picture. January Services PMI softened across the bloc, underscoring lingering fragility in domestic demand. However, Germany, the region’s economic bellwether, delivered upside surprises in both manufacturing and services activity, reinforcing the view that the worst of the slowdown may be behind it.
European Central Bank officials remain firmly data-dependent, having avoided signalling any near-term policy adjustment at their most recent meeting. Markets have largely abandoned expectations for further rate cuts this year, reflecting persistent services inflation and uneven growth dynamics.
In relative terms, Sterling’s strength following robust UK data caps GBP/EUR downside. That said, upcoming German Ifo business sentiment data could provide incremental support for the Euro if confidence continues to stabilise.
For corporates and investors, the Euro’s performance remains more a function of external flows and relative central bank positioning than a decisive improvement in domestic fundamentals.
Weekly Data:
No Major Data
USD
Elevated risk premium keeps the Dollar exposed
The Dollar enters the week with a heightened risk premium following renewed focus on Japanese intervention dynamics and broader geopolitical uncertainty.
Markets continue to assess reports that Japanese authorities intervened as USD/JPY approached ¥159.00, compounded by unusual signals late Friday suggesting coordination with US counterparts. The prospect of bilateral Japan–US intervention represents a materially stronger deterrent to further yen weakness than unilateral action from Tokyo alone.
While these developments have weighed on Dollar sentiment and driven the DXY lower, they do not reflect a deterioration in underlying US fundamentals. Real interest rate differentials still favour the Dollar, and the Federal Reserve is widely expected to maintain a firm policy stance at this week’s meeting.
That said, intervention risk introduces tactical volatility. Traders are now alert to potential activity around market opens and closes, while USD/JPY resistance near ¥155.65 is closely watched. Sustained Dollar weakness would likely require confirmation via softer US economic data or a meaningful shift in Federal Reserve communication.
Beyond central banks, attention will also focus on upcoming earnings from US technology leaders, given their influence on equity sentiment, capital flows, and broader Dollar demand.
Weekly Data:
28th January
7:00pm - Federal Funds Rate, FOMC Statement & FOMC Press Conference
29th January
1:30pm - Unemployment claims
30th January
1:30pm - Core PPI m/m & PPI m/m
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