FX Markets Open 2026 with Volatility and a Firmer Dollar

By Currency Global | January 5, 2026

FX Markets – Weekly Snapshot

FX markets have started the year with increased volatility, driven by a firmer US Dollar and cautious risk sentiment.

  • USD remains supported by safe-haven demand and strong US data.
  • EUR and GBP have softened modestly against the Dollar as markets reassess growth and rate expectations.
  • Positioning remains balanced, leaving markets sensitive to data and headlines.

GBP

Sterling has strengthened against the Euro, with GBP/EUR trading at its highest levels since October, helped by improved global risk appetite rather than UK-specific data.

  • UK data remains light, while strong equity markets have supported Sterling.
  • Any impact from upcoming Eurozone inflation data is likely to be short-lived.

Against the Dollar, GBP/USD has pulled back from recent highs, reflecting consolidation after a strong year-end rally. Near-term moves will be driven by US data.

EUR

The Euro has eased against the Dollar after briefly trading at recent highs.

  • EUR/USD has slipped back below key support, with downside risks if US data remains strong.
  • Broader Euro upside is seen later in the year, with markets currently stuck in a consolidation phase.

USD

The Dollar continues to find support from geopolitical uncertainty and resilient US growth.

  • Markets are pricing limited Federal Reserve rate cuts in the near term.
  • Early-year seasonality also tends to favour the Dollar.

Key FX volatility drivers for January 2026:

  • Geopolitics: Elevated risk premiums continue to influence USD and haven currencies.
  • Central banks: Fed, ECB, and BoE signalling will shape rate expectations.
  • Macro data: Inflation, growth, and employment data will set the tone for Q1 positioning.
  • Cross asset flows: Moves in bonds, oil, and equities feeding directly into FX.

Commodities

Oil Markets:
– Crude prices are trading range bound, balancing geopolitical risks against demand concerns.
– Supply side uncertainty and OPEC+ discipline are offering support.
– Global growth expectations and China demand remain key downside risks.
– Oil linked currencies (CAD, NOK) are staying sensitive to headline driven moves.

Gold Markets:
– Gold remains well bid as investors seek protection against geopolitical risk and macro uncertainty.
– Safe haven demand remains strong.
– Expectations of easier monetary policy later in 2026 continue to underpin prices.

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