🇬🇧 Rising Redundancies Add to Sterling’s Downside Risks
Last week, Sterling weakened against both the Euro and the US Dollar. Although the currency stabilised into Friday’s close, it remains on track for a second consecutive weekly decline.
Cable touched its weakest level since late December, briefly trading around the 1.34 mark, while GBP/EUR opens the week near 1.15. Data from the Insolvency Service showed that potential redundancies rose sharply to 33,392 in the December, the second-highest level recorded in the post-pandemic period. As redundancies are a leading indicator of labour market conditions, this increase points to further job losses ahead, an unwelcome development for the Bank of England.
The Bank’s policy stance appears firmly on hold for now, with markets widely expecting no change at the early February meeting. However, downside risks persist if softening labour market conditions begin to undermine inflation persistence.
🇺🇸 Dollar Opens 2026 Under Pressure as Fed Independence Concerns Resurface
The Dollar has started 2026 much as it ended 2025, dominated by the ongoing ‘Trump factor’. Cable opened Monday by reversing some of last week’s Dollar gains, despite Friday’s recovery suggesting traders were initially encouraged by the more positive elements of recent US data, namely a decline in the unemployment rate to 4.4% from 4.5% and an acceleration in annual wage growth.
That optimism faded over the weekend as President Trump continued his politicisation of the Federal Reserve. The Dollar subsequently weakened on Monday after the US Department of Justice announced it was suing the Federal Reserve over alleged overspending related to renovations at the Fed’s headquarters.
This development is unequivocally negative for the Dollar, making sustained appreciation harder to achieve. While near-term Federal Reserve policy is unlikely to be materially affected, the longer-term ramifications of heightened political pressure on the central bank are far more significant.
🇪🇺 Euro Starts Week Firmly Amid USD Weakness
The Euro opened the week on a firmer footing against the Dollar, benefiting from heightened political volatility in the United States that rippled through global markets and weighed on the greenback. The resulting dollar weakness has fuelled a renewed Euro rally, with EUR/USD pushing closer to the 1.17 level.
This price action reinforces the view that the euro is increasingly acting as an alternative reserve currency during periods of Dollar volatility and decline. Against Sterling, the Euro initially clawed back ground after peaking at 1.1568 last Tuesday, following a sharp 0.60% rise on Monday, an unusually large move for the pair that had set it up for a potential second consecutive weekly gain.
However, those gains were subsequently pared back as supportive Eurozone data helped stabilise the single currency. Data released on Friday showed retail sales rising more than expected in November, while German industrial activity continued to expand. Together, the figures suggest the currency bloc ended a turbulent year with stable modest growth, with inflation remaining comfortably around the ECB’s 2% target.
This Weeks Key Market Moving Data
This week is unlikely to be driven by major market-moving data, with attention instead focused on the fallout from the case involving Federal Reserve Chair Jerome Powell. That said, US data releases, including retail sales, will still be monitored for signs of economic momentum. In the Eurozone, further inflation data releases are due, while the UK faces a relatively quiet week, highlighted by the release of GDP figures.
Wednesday January 14th
US Retail Sales Data
US Retail Sales data is a key indicator of consumer spending, as it measures the value of goods sold by retailers directly to consumers. A strong reading is generally viewed as bullish for the US dollar, while a weak reading is considered bearish.
Thursday January 15th
GBP Gross Domestic Product (MoM) (Oct)
UK monthly GDP is significant as it shapes expectations for domestic growth and is a key indicator for how quickly the Bank of England can ease policy. A stronger than expected print typically supports sterling by reducing near-term rate-cut pricing, while a weaker reading can pressure GBP as markets lean more dovish on the BoE.
Friday January 15th
Germany Release Harmonized Index of Consumer Prices
Germany’s HICP inflation print matters for the Euro because, as the largest economy in the Eurozone, it has outsized influence on the region’s overall inflation outlook and ECB policy expectations. A higher than expected reading can support the Euro by pushing back against rate-cut pricing, while a softer print may weigh on the Euro as markets lean toward earlier easing.
