GB Pound

Sterling benefitted from some respite from the dollar rally last week as investors retraced some of the tariff premium in Cable following Trumps first week in office. In UK news, last week’s job cuts accelerated at their fastest pace since 2009 (excluding the Pandemic peak) and January’s PMI’s noted intensifying cost burdens.

What to watch for in the short-term?

With a quiet week ahead on the data front, markets are beginning to look toward the next BoE meeting on the 6th (25bp expected). However, stubborn inflation—projected to exceed 3% in coming months—limits the BoE’s flexibility. The government’s fiscal measures remain under scrutiny, as calls grow for easing certain budget constraints to mitigate layoffs and stimulate growth.

What about the coming months?

With growth slowing to 0.2% in Q4 2024, the UK’s economic outlook remains subdued. Stagflation—combining weak growth and elevated inflation remains a concern, keeping Sterling sensitive to signals of further economic strain.

Calendar

Wednesday 14.15pm | Governor Bailey speech

US Dollar

USD depreciated against most currencies last week as markets begun unwinding the ‘tariffs from day one’ trades. As Trumps first few speeches seemed to indicate softer tariffs for China and retaliatory measures against Colombia, markets perceived the first week in office as a sign that there could be less inflationary policies than expected (which put pressure on the dollar). While US short-dated swap rates fell last week the dollar seems to be only one Trump comment away from another rally higher.

What to watch for in the short-term?

In the immediate term, the Federal Reserve’s upcoming meeting (rates are expected to remain at 4.25%–4.50%) and high-impact data—such as Q4 GDP and PCE inflation—will likely guide the dollar’s direction. Any surprises to the Feds preferred inflation metric on Friday could reassert dollar strength, especially given concerns about potential trade-driven price increases.

What about the coming months?

Although markets currently anticipate c.43bp of rate cuts in 2025, stronger dollar headwinds from tighter global financing conditions may weigh on emerging markets with significant USD debt.

Calendar

Wednesday 7pm | Fed interest rate decision

Thursday 1:30pm | US Q4 GDP Estimate

Friday 1.30pm | PCE data

Euro

The market pricing of less harsh tariffs supported risk currencies against the dollar last week. However, the single currency spent much of last week depreciating against sterling on the back of rhetoric from Madame Lagarde in Davos suggesting the ECB expects inflation to trend back to target this year.

What to watch for in the short-term?

The ECB meets this Thursday, with a 25 bp rate cut widely expected due to subdued inflation and sluggish growth across the Eurozone. Markets will also be watching to see if calls from major EU economies (like France and Germany) to pause tougher corporate sustainability rules. Eurozone Q4 GDP data (due the same day) could reinforce the need for further monetary easing if it highlights continued stagnation or contraction.

What about the coming months?

Additional ECB rate cuts—potentially up to 100bp in total for 2025—are on the radar if Eurozone growth fails to pick up and inflation remains muted. Structural challenges, including energy price volatility and shifting competitive landscapes under Trump’s deregulation drive, keep the Euro’s medium-term recovery constrained.

Calendar

Monday 8.10am | Lagarde speech

Tuesday 5pm | Lagarde Speech

Thursday 10am | GDP (Q4) & Unemployment (Dec)

Thursday 1.30pm | Interest rate decision