Volatility Returns: Inflation Data and Policy Signals Drive FX Markets
Central Banks
ECB: Left interest rates unchanged last week, maintaining a cautious stance as inflation trends closer to target. Policymakers emphasised a meeting by meeting approach, remaining data dependent.
BoE: Also left interest rates unchanged, keeping policy restrictive as inflation remains above target. Future easing is expected to be gradual and data driven.
United States – Policy & Politics
President Trump has proposed Kevin Warsh as the next Fed Chair to succeed Jerome Powell (subject to Senate approval). Markets are also watching continued tariff rhetoric from the US administration, which could support USD safe haven demand and drive volatility.
What to Expect – FX Volatility This Week
GBP Volatility:
Sterling is likely to see heightened intraday swings this week as a dense UK data slate lands, including key CPI, retail sales, PMI and labour market prints. These events historically drive significant volatility for GBP crosses as markets re price expectations for future BoE policy direction.
EUR Volatility:
Eurozone data, particularly flash PMIs and inflation indicators, will keep traders attentive. With the ECB having just held fire on rate changes, any signs of accelerating or decelerating inflation could prompt sharper moves in EUR pairs. Even if no new policy shifts are announced, messaging shifts around future guidance may underpin short term volatility.
USD Volatility:
The US dollar typically displays elevated sensitivity around US inflation reads, retail sales and labour/sentiment metrics. With Fed leadership developments in focus and markets watching for any shift in policy expectations under a potential new Chair, the USD could remain a core source of volatility across G10 this week.
Week Ahead – Key Market Events
• UK CPI and labour market data.
• Eurozone inflation and PMI updates.
• US inflation, retail sales, and Fed commentary.
Commodities
Gold: Supported by geopolitical risk and reserve diversification demand.
Oil (Brent): Trading around mid-$60s/bbl, reflecting mixed demand outlook and supply dynamics.
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