Sterling Gains Ground, Eurozone Inflation in Focus, and USD Eyes Jobs Report for Direction
GBP
Sterling has held up well following its shaky start to the new year, trading firmly above 1.20 against the Euro (currently 1.2051) and pushing above 1.25 against the Dollar (currently 1.2570).
It’s a quiet week ahead for UK data. This morning’s BRC Like-for-Like Retail Sales figures for December came in at +3.1%, significantly beating the -0.2% consensus, which has provided some bullish momentum for Sterling. Despite the December uptick, the broader picture remains subdued. The BRC reported that retail performance in Q4 2024 was underwhelming, with just 0.4% year-on-year sales growth. For the year as a whole, total retail sales rose by only 0.7%, with like-for-like sales up a modest 0.5%. Helen Dickinson, Chief
Executive of the BRC, summed it up, saying, “After a challenging year of weak consumer confidence and tough economic conditions, the crucial ‘golden quarter’ failed to deliver the strong finish retailers had hoped for in 2024.”
Looking ahead, BoE Deputy Governor Sarah Breeden is scheduled to speak on Thursday at 4pm. Markets will be closely watching her comments for insights into the UK’s financial stability and any hints regarding the Bank’s next interest rate decision on 6th February.
All eyes will be on the Eurozone and the US this week, with key data releases expected to influence market movements.
EUR
In the Eurozone, attention turns to Germany’s December inflation data, which will offer a key indicator ahead of tomorrow’s Eurozone-wide figures.
Last week, the Euro gained support after Spanish inflation for December came in higher than expected, driven largely by a stronger-than-anticipated rise in core inflation. If Germany’s data also exceeds forecasts, we could see downside pressure on GBP/EUR.
Looking ahead, Eurozone HICP inflation is expected to edge up to 2.4% year-on-year in December, compared to 2.2% in November. However, this increase is unlikely to alter expectations of further interest rate cuts from the European Central Bank (ECB), which could cap any significant Euro strength.
On Thursday, the ECB Economic Bulletin will be released, shedding light on the Bank’s outlook for the region. Markets will be watching for confirmation of ongoing economic challenges and the rationale for additional rate cuts.
USD
GBP/USD is on the rise for the third day in a row, supported by a weaker US Dollar. Later today, attention will turn to the release of the US ISM Services PMI, followed by the Minutes from the Federal Reserve’s December meeting on Wednesday.
The US Dollar Index, which measures the Dollar’s strength against a basket of six major currencies, is under pressure for a third consecutive session, currently trading near 108.30. However, the Greenback could find some relief after President-elect Donald Trump dismissed reports that his tariff plans might be scaled back. Trump clarified that his administration is not considering limiting tariffs to specific critical imports, which has reassured some markets. Traders will be monitoring any further updates on this front.
Looking ahead, Friday’s US jobs report will take centre stage, with the potential to drive cross-currency movements, including GBP/EUR. Analysts expect the US economy to have added 180,000 jobs in December, showing only a slight dip from November’s robust 227,000. Recent lead indicators suggest the US economy remains on solid footing, supporting the case for continued Dollar strength.
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