Sterling Holds Firm, Dollar Faces Volatility, and Euro Eyes Economic Challenges

Currency Pairs (Mid-Market Rates)

• GBP-USD: 1.2254
• GBP-EUR: 1.1832
• EUR-USD: 1.0356

Interest Rates

• UK: 4.75%
• US: 4.5%
• Eurozone: 3.15%

Inflation

• UK: 2.6%
• US: 2.7%
• Eurozone: 2.4%

UK

Tuesday – Claimant Count Change:
The Pound held steady after UK wage growth data surprised to the upside. Average Earnings (Excluding Bonus) rose by 5.6%, beating expectations and highlighting robust wage growth. However, weak labour growth (+35K workers) and a higher unemployment rate (4.4% vs. 4.3% prior) reveal challenges in the job market.

While strong wage growth supports inflationary pressures, soft labour demand could balance expectations for a Bank of England rate cut in February.

Sterling gained some ground against the Dollar on Tuesday after struggling to maintain its recovery towards a 10-day high of 1.2344. The currency pair then weakened as the Dollar regained ground following President Donald Trump’s confirmation that the universal tariff hike proposal is still on the table, though he stated, “We are not ready for that yet.”

Friday – PMI Figures:

• Manufacturing PMI: Expected to rise slightly (47.0 → 47.1), signalling mild GBP bullishness.
• Services PMI: Forecasted to decline (51.1 → 50.6), indicating bearish pressure on GBP.

US

The US Dollar’s outlook took a hit as traders expected President Trump to introduce hefty tariffs shortly after returning to office. This assumption had also strengthened expectations that the Federal Reserve would keep interest rates steady for longer.

At the moment, markets largely believe the Fed will hold off on cutting interest rates in the next two policy meetings. However, there is some uncertainty about the May meeting, with the CME FedWatch tool showing a nearly 50% chance that rates will remain in the current range of 4.25%-4.50%.

Later this week, all eyes will be on the preliminary US S&P Global PMI data for January, set to be released on Friday, which could provide fresh insights into the economic outlook.

Monday – Trump’s Return to Office:
Donald Trump is sworn in as the 47th President of the United States. Markets anticipate heightened volatility as Trump outlines his economic policies, including tariffs, immigration reforms, and deregulation.

Friday – PMI Figures:
Composite, Manufacturing, and Services PMI data will be released. Lower readings may pressure the USD bearish, while higher readings would support bullish momentum.

Eurozone

EUR|USD remains undervalued despite a slight rebound yesterday. This suggests that concerns over tariffs are still affecting the pair.

The Euro may find some support against other currencies if Europe continues to avoid being directly mentioned in President Trump’s tariff plans. However, as seen with Canada and Mexico, policy shifts can happen quickly, and the Euro’s broader appeal remains weak due to underlying economic challenges. As a result, any recovery is unlikely to push EUR|USD above 1.050.

Wednesday – ECB President Lagarde’s Speech:
Markets will look for guidance on monetary policy and economic outlook.

Friday – PMI Figures:

Composite, Manufacturing, and Services PMI:
Weak readings could weigh bearish on the Euro, while strong data may bolster it.

Friday – ECB President Lagarde’s Speech:
Lagarde’s second speech of the week will likely reinforce key economic themes, with potential market impacts.

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