GBP: Soft GDP keeps the BoE cut story live

Sterling slipped initially after the US data, with GBP/USD moving from the 1.37 area towards 1.36 as the dollar and Treasury curve firmed.

This morning’s UK GDP release did not help the narrative. Fourth quarter growth printed at 0.1% quarter on quarter versus 0.2% expected. Services, the core of UK activity, was flat, construction contracted and production provided a modest offset. Year on year GDP rose 1.0% versus 1.2% forecast. The overall read through is familiar: a low growth profile that leaves GBP sensitive to any repricing in the rate path.

Markets remain geared towards easier BoE policy. OIS is already pricing better than a 70% chance of a March cut following the dovish hold, which puts next week’s January CPI in the driving seat for front end gilts and GBP direction. Technically, GBP/USD is still near its rising 21 day moving average, suggesting trend support has not fully given way, but the fundamental cushion looks thin while growth is this soft.

USD: Headline beat, softer story underneath

Markets went into the US jobs report expecting further evidence of cooling. Instead, January nonfarm payrolls rose 130k and the unemployment rate dipped to 4.3%, both firmer than consensus expectations.

The bigger message is in the trend once benchmark revisions are included. The annual revision lowered March 2025 total nonfarm employment by 898k on a seasonally adjusted basis (minus 0.6%), recasting 2025 as a year with only 181k jobs added in total, around 15k per month. Hiring momentum also remains concentrated, with health care and social assistance again doing most of the work in January while many other sectors were little changed.

Into 2026, near term US support from fiscal measures and AI linked capex sits against higher risk premia and policy uncertainty, a mix that can keep long end yields sticky and the dollar’s response to data less reliable than usual. Notably, despite higher yields on the print, broad USD performance was subdued.

EUR: Calm reaction in EUR/USD, structure still constructive

EUR/USD barely moved on the US jobs surprise, consistent with a market already anchored to a hawkish Fed baseline and attentive to the composition of payrolls rather than the headline. With US job gains still narrow and other indicators pointing to weaker vacancies, the report does not force a clean hawkish reset.

EUR/USD remains steady in the high 1.18s, holding above key moving averages and maintaining a constructive near term structure.

Looking ahead

• US: inflation data and Fed communication for confirmation that policy remains on hold despite the headline jobs beat

• UK: January CPI as the key catalyst for BoE March pricing after a soft Q4 GDP print

• Euro area: risk sentiment and relative data surprises, with EUR/USD still trading with a strong technical bias

• FX: watch for asymmetry in USD, with smaller upside on strong prints and larger downside on growth or inflation disappointments