USD weakness continues as new Fed Chair expected to be announced this week
Further pressure on the USD saw GBP/USD climb through 1.3650 and EUR/USD nearing 1.2000 again - considering it was at 1.05 in February 2025, this is a big sell-off.
USD:
“USD under pressure” has been the theme of 2026, with the currency dropping around 2% vs most of it’s peers. Selling accelerated over the weekend as the market speculated that the new Federal Reserve Chairman will be announced this week - a great summary here:
”…. Investors worry that the Fed would lose its independence after the appointment of a Trump candidate as Fed Chairman. In the past, Trump has criticized Powell for not lowering interest rates and has also imposed criminal charges for renovation cost overruns. Therefore, it is highly anticipated that decisions taken by the new Chairman will be biased towards Trump’s economic agenda …”
Wednesday’s interest rate announcement is expected to bring a pause in the US rate-cutting cycle after 3 consecutive cuts, taking the rate down to the 3.5% - 3.75% range. However, this pause in cuts may not be enough to stave off further USD selling.
GBP:
The UK saw strong data released last week which bolstered GBP/EUR above 1.1500 and GBP/USD pushed through 1.3650 (encouraged by a weak USD). Decent Retail Sales and Purchasing Managers data helped push GBP higher ahead of a relatively light data-week ahead of us.
The central bank has used language of a ‘gradual downward path’ for interest rates and inflation data will be closely watched ahead of February's interest rate decision.
The Bank of England cut rates by 0.25% to 3.75% and markets currently expect one 0.25% cut 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. Weak German IFO data this morning caused EUR/USD to fall back from recent highs, but near 1.1900, we are at the highest level since Sep25.
Elsewhere:
Canada: EUR/CAD remains elevated above 1.6200 and the Central Bank is likely to leave interest rates on hold (at 2.25%) and reiterate a cautious stance on rates. It is difficult to see where CAD strength will come from, given the economic threats from the USA
This week’s data:
Tuesday:
EUR: Central Bank speeches
Wednesday:
AUD: Inflation data
CAD: Interest rate decision and speeches
USA: Interest rate announcement
Thursday:
US: Employment
EU: Business & Consumer sentiment
Friday:
Japan: Inflation data
EUR: GDP
Germany: GDP & confidence data
USA: Producer Inflation data