Choppy start for the USD ahead of key data on Friday

GBP has started 2026 on the front-foot whilst the USD, Aussie and Indian Rupee dropped and there is a raft of data ahead this week. The US releases non-farm labour data on Friday, which will be closely watched because it has such an influence on US interest rates.

USD:
EUR/USD fell under 1.1700 yesterday as the USD strengthened as tensions were raised over the weekend as the US administration took Venezuela’s President Maduro into custody. The move was undone overnight, with the USD easing back - EUR/USD now at 1.1735

The USD weakened at the end of December - the Fed (FOMC) December Meeting Minutes suggested last week that most participants judged that it would likely be appropriate to stand on further rate cuts if inflation declined over time. Meanwhile, some Fed officials said it might be best to leave rates unchanged for a while after the committee made three rate reductions this year to support the weakening jobs market.

GBP:
GBP started the week by rallying - GBP/EUR back above 1.1525 as the EURO suffered due to rising global tensions which will exacerbate issues surrounding the war in Ukraine (where the situation has certainly escalated). GBP/EUR near 2-month highs today.

GBP/USD also climbed above 1.352500 as GBP is supported by the Bank of England’s cautious approach to cutting interest rates - which is in sharp contrast to the US Fed which is expected to cut rates 3 times in 2026.

The Bank of England cut rates by 0.25% to 3.75% and markets only expect one 0.25% in the first half of 2026. This is due to Inflation (CPI) reading at 3.2% (far above the 2% target) being stubbornly high which justifies higher rates.

EURO:  
EUR is still suffering due to the war in Ukraine, but may gain support from the central bank’s ‘wait-and-see’ stance on interest rate cuts. the ECB kept rates on hold in December and the guidance was that rates will remain on hold for a prolonged period of time. This stance is driven by continued uncertainty across Europe, its various economies and the geo-political situation.

Elsewhere:

Australia: Although off to a poor start yesterday (due to weak Chinese data), the markets are expecting the Australian central bank to raise interest rates which should support the currency in the medium term. Data on 28th January will help markets gain clarity on this situation.

India: The Rupee declined as Trump threatened increased tariffs on Indian imports, in response to India not supporting Washington in it’s project to stop nations purchasing Russian oil. In 2025, Trump raised import duties on India to 50%, which included punitive 25% tariffs for buying oil from Russia

This weeks data:
Today:
Euro: ECB Speeches
Germany: Inflation data
USA: Fed speeches

Wednesday:
Australia: Inflation data
Euro: Consumer Prices
USA: Services & employment data / Fed speech

Thursday:
Australia: Trade Balance
Switzerland: Inflation
Euro: Unemployment rate / Consumer confidence / Producer price inflation

Friday:
China: Producer Prices
Germany: Industrial Production data
Canada: Unemployment rate
USA: Employment data