🇬🇧 Pound Bulls Run Into Technical and Dollar Headwinds
Sterling faced headwinds last week as supportive fundamentals collided with firm technical resistance. The Pound started 2026 strongly, gaining against both the Euro and the Dollar.
Against the Euro, persistent UK inflation pressures have scaled back expectations for Bank of England rate cuts, lending support to Sterling, though rallies continue to fade near the 200-day exponential moving average, leaving GBP/EUR vulnerable to selling on strength. In cable, a late Dollar rebound of nearly 1% weighed on the pound after GBP/USD briefly touched a four-year high at 1.3869 following a near-2% rally.
The pullback helped unwind overbought conditions, with the Dollar regaining momentum after confirmation of Kevin Warsh’s appointment as Federal Reserve Chair. Cable opens the week at 1.36, while GBP/EUR trades around 1.15.
🇺🇸 Fed Independence Reassures Markets, Supporting the Dollar
As previously noted, Cable briefly touched a new four-year high at 1.3869 on Tuesday before stalling, triggering an unwind of overbought conditions. The subsequent Dollar rebound gathered momentum into the weekend following confirmation of Kevin Warsh’s appointment as Chairman of the Federal Reserve. Markets had initially feared that Jerome Powell’s successor might be politically aligned with the Trump administration and more inclined to push for lower interest rates despite elevated inflation.
However, Warsh is viewed as a seasoned and credible appointment, having previously served on the Fed’s Board of Governors under the George W. Bush administration. This has helped reassure investors that the Federal Reserve remains independent, easing concerns over aggressive rate cuts and reinforcing confidence in the Fed’s commitment to controlling inflation – developments that are supportive for the Dollar.
🇪🇺 Euro Pressured by Dollar Strength and Relative UK Resilience
A broader Dollar rebound was also evident in EUR/USD, with the Euro falling more than 1% against the Dollar on Friday. The move was driven by the same catalyst seen elsewhere, as confirmation of the Federal Reserve appointment prompted a pullback after last week’s highs near 1.1940. The pair ended the week notably lower and opens the new week just above 1.18.
This pressure on the Euro also carried over into EUR/GBP, where Sterling found support from persistent UK inflation pressures that have reduced expectations for Bank of England rate cuts. Looking ahead, key Eurozone retail sales data due this week could help support a recovery in the Euro if the figures surprise to the upside.
This Weeks Market Moving Data
Next week is a data-heavy one for markets, highlighted by the Bank of England’s interest rate decision on Thursday. The Eurozone will release key inflation figures alongside retail sales data, while the main focus in the US will be the labour market, with the non-farm payrolls report set to dominate.
Thursday 5th February
Bank Of England Interest Rate Decision
The Bank of England’s policy decision this week will be a key focus for markets, with investors watching closely for any changes to the Monetary Policy Committee’s assessment of inflation persistence and domestic demand. For FX, the tone of the statement, accompanying guidance, and Governor Bailey’s remarks will shape expectations for the timing and pace of rate cuts in 2026, influencing near-term moves in sterling pairs.
Eurozone Retail Sales Data Release
The Eurozone Retail Sales data is a great economic indicator of consumer spending across the bloc, as it measures the volume of sales of goods by retailers directly to end customers. A strong reading is generally seen as bullish for the Euro, while a weak weeding is seen as bearish.
Friday 6th February
US Nonfarm Payrolls Release
The US Nonfarm Payrolls report is one of the most influential indicators of American economic health, showing whether job creation is accelerating or cooling. Because it heavily shapes Federal Reserve interest-rate expectations, the release can trigger significant moves in the US dollar as markets react to the labour market’s strength or weakness.
