🇬🇧 Stable as Growth Data Reassures, but Upside Remains Limited
Last week, GBP posted modest losses against the US dollar while remaining broadly stable versus the euro, despite stronger than expected UK GDP data. Three-month GDP growth to November 2025 was +0.1%, supported by a rebound in manufacturing following Jaguar Land Rover’s production restart after an August cyberattack.
However, markets viewed this as a temporary boost rather than sustained growth, limiting upside for the pound. GBP opened the week just below 1.34 against the dollar, while GBP/EUR hovered around 1.15. The pullback reflected technical selling and profit-taking, not weaker UK fundamentals, leaving the broader outlook cautiously supportive. Looking ahead, UK inflation data may drive near-term gains.
While an upside surprise could lift GBP, ING expects inflation to return to the BoE’s 2% target by April, raising the risk that renewed disinflation later this year could again pressure the currency.
🇺🇸 Softens as Tariff Rhetoric Revives ‘Sell America’ Trade
The US Dollar opened Monday trading softer across the board following weekend reports that President Donald Trump plans to impose tariffs on European countries over their refusal to allow the US to purchase Greenland. Trump stated that a 10% tariff on EU and UK imports would take effect on February 1, rising to 25% by June, a move that has weighed on the Dollar Index.
As markets experienced in 2025, the re-emergence of ’Trump trade’ dynamics, particularly the introduction of tariffs tends to cap USD upside. Early price action resembles the ‘Sell America’ trade theme of last year, when investors judged tariff policy and broader political actions as detrimental to US economic prospects and its global standing.
With the EU and UK highly unlikely to shift their position on Denmark’s sovereignty over Greenland, tariffs are unlikely to succeed as a negotiating tool, reinforcing the view that this episode offers little strategic upside and persistent downside risk for the Dollar.
🇪🇺 Euro Supported by Rising US–EU Trade Tensions
The Euro opened Monday trading stronger, gaining around 0.25% following President Trump’s renewed tariff threats. EUR/USD has now started the week above 1.16, while EUR/GBP remained broadly stable over the past week. This week, the EU’s response will be pivotal for global markets.
Brussels remains firmly opposed to President Trump’s demand regarding Denmark’s sovereignty over Greenland and is preparing a potential response should the US proceed with tariffs. The EU is reportedly in discussions to impose retaliatory tariffs on up to €93bn of US imports if Trump follows through on his plans.
In addition, the EU has suspended the implementation of the EU–US trade agreement reached last year. President Trump has stated he will impose a 10% tariff on EU imports from February 1, rising to 25% by June, unless European countries reverse their position. If the market dynamics seen in 2025 persist, this escalation in trade tensions is likely to create further upside for the Euro against the US dollar.
This Week’s Market Moving Data
This week could prove pivotal for global markets, with several key data releases scheduled across major economies. Combined with renewed political risk from President Trump, volatility risks are elevated.
In the US, markets will focus on PMI and inflation data. The UK releases inflation and retail sales figures, while the Eurozone’s manufacturing data will be closely watched for signals on growth momentum.
Wednesday January 21st
UK Inflation Figures Released
The December CPI release will be critical for assessing the pace of UK disinflation and shaping expectations for future Bank of England rate decisions. A softer print would reinforce the case for rate cuts and weigh on GBP, while persistent headline or core inflation would support the pound by delaying policy easing.
Thursday January 22th
Core Personal Consumption Expenditures Data Release
The Core PCE Price Index is the Federal Reserve’s preferred measure of inflation, making it a key driver of US interest rate expectations. A higher than expected reading would signal persistent inflation and support the dollar by delaying rate cuts, while a softer print would strengthen the case for easing and weigh on USD.
Friday January 23rd
Eurozone HCOB Data Release
The HCOB PMI data provides an early snapshot of Eurozone economic momentum, with readings around the 50 level signalling expansion or contraction. The releases are closely watched as they shape ECB rate expectations and near-term Euro direction.
