🇬🇧 Sterling Rallies on Strong Data as BoE Rate-Cut Expectations Fade
Last week, the pound recorded strong gains against the US dollar, rising over 1.5%, while advances versus the euro were also firm at more than 0.4%. The week opens with GBP/USD above 1.36 and GBP/EUR near 1.15.
Sterling’s recovery gathered pace after data showed the UK economy grew comfortably in January. S&P Global’s PMI surveys beat expectations, with all readings above the 50 growth threshold, contrasting with weaker Eurozone data and underpinning GBP/EUR. Gains against the dollar underscored that the move reflected broad-based sterling strength, rather than weakness in other currencies.
Further support came from UK retail sales, which rose 0.4% in December against expectations of a decline, while annual sales increased 2.5%, more than double forecasts. Collectively, the data reduced expectations for a February Bank of England rate cut, helping the pound stabilise after a difficult week.
🇺🇸 Dollar Under Pressure as Trade Risks Rise and Gold Replaces Treasuries
The Dollar endured a turbulent week, with the US Dollar Index falling below 97 for the first time since September last year. Both GBP/USD and EUR/USD recorded gains of over 1%, with the Euro moving within touching distance of 1.19, suggesting momentum remains on the Euro’s side, in line with trends seen through 2025.Trade tensions continue to escalate, with Canada emerging as a new target after President Trump threatened 100% tariffs should President Carney pursue a trade deal with China.
Heightened geopolitical uncertainty has encouraged central banks to further diversify their reserves. For the first time since the mid-1990s, central banks now hold more gold than US Treasuries.
This shift reflects efforts to reduce exposure to potential sanctions and to hedge against geopolitical risk. With central bank gold purchases expected to remain strong this year, the trend points to ongoing structural pressure on USD.
🇪🇺 Eurozone Growth Holds, but Loses Momentum
Last week’s Eurozone PMI data showed the bloc is growing, but only just. The composite PMI held at 51.5, indicating modest expansion and an economy that is avoiding recession rather than entering a healthy recovery.
Output continues to rise and manufacturing has stabilised, while new orders remain positive and Germany is showing signs of improvement. However, momentum is fading, particularly in services, and employment has started to contract, led by job losses in Germany. France has slipped back into contraction, export demand remains weak, and inflation pressures are picking up again, especially in services.
Overall, the Eurozone is expanding too slowly to generate jobs, and renewed inflation pressures limit the European Central Bank’s scope to ease policy, reinforcing expectations that interest rates will remain higher for longer.
This Weeks Market Moving Data
This week is relatively quiet for UK data, shifting the focus overseas. The key event is the US Federal Reserve’s interest rate decision on Wednesday, while the Eurozone will release GDP figures, providing further insight into the bloc’s economic momentum after last week’s PMI data highlighted underlying weaknesses.
Wednesday 28th January
Federal Reverse Interest Rate Decision
The Federal Reserve’s policy decision this week will be a key focus for markets, with investors watching closely for any changes to the Committee’s assessment of inflation persistence and domestic demand. For FX, the tone of the statement, accompanying guidance, and Chair Powell’s remarks will shape expectations for the pace of easing in 2026, influencing near-term moves in USD pairs.
Friday 30th January
German Gross Domestic Product Data Release
Germany’s GDP release measures the growth or contraction of Europe’s largest economy, serving as a key indicator of overall Eurozone economic health. A strong reading typically boosts confidence in the region and supports the Euro, while a weaker than expected result can raise recession fears and pressure the currency lower.
Eurozone Gross Domestic Product Data Release
The Eurozone GDP data release provides an official snapshot of the region’s economic growth, measuring changes in output across member countries. This will be a key indicator for assessing the European Central Bank’s policy trajectory.
