USD: geopolitics stays secondary to rates

US steps in Venezuela look like strategic signalling rather than a tradable supply shock. With Venezuela supplying only a sliver of global output, shipping mostly heavy grades, and lacking the investment backdrop to raise production quickly, the oil and FX transmission channels look limited. The more relevant message is a shift in Washington’s risk tolerance, which keeps markets alert to larger fault lines, particularly Iran and, more systemically, China–Taiwan where any escalation would hit semiconductor supply and global growth.

The US data pulse was mixed and failed to reset dollar direction, leaving USD tied to the usual growth and rates narrative. ADP came in at 41k versus 50k expected and JOLTS openings dropped sharply, but quits firmed and layoffs stayed contained, consistent with a low-hire, low-fire labour market. ISM services rose to a 14-month high and prices paid remain elevated, arguing for Fed patience. With residual short-USD positioning from year-end still in the system, there is scope for short-covering support if Friday’s payrolls (66k consensus; unemployment seen at 4.5%) does not revive easing expectations.

GBP: consolidation after a momentum-led push

Sterling has retreated from fresh three-month highs against both USD and EUR as the global tone turns more defensive and safe-haven demand picks up. With little on the UK calendar in the near term, price action is being dictated by the external backdrop, particularly swings in US rates and broader risk appetite. The pullback is consistent with a market that will reward GBP in calmer conditions, but struggles to sustain rallies when volatility rises.

Technical signals also point to a pause. GBP/EUR has repeatedly failed at the 200-day moving average and momentum had drifted into stretched territory earlier in the week, leaving the cross vulnerable to further near-term give-back if risk sentiment stays soft. The next domestic checkpoints are next week’s GDP release and, more importantly, the subsequent run of labour market, inflation and PMI data, which should shape expectations into the Bank of England’s February decision.

EUR: geopolitics and spreads keep the tone heavy

Euro area inflation prints were broadly in line and did little to shift the ECB story. German CPI ran soft, but the aggregate euro area reading met the 2.0% consensus, and ECB communication has lowered the market’s sensitivity to marginal undershoots. Services inflation has eased only incrementally, keeping the Governing Council comfortable with a gradual approach, even if a later dip below target, helped by lower energy, softer wages and a firmer euro, would strengthen the case for additional easing in 2026.

For EUR, geopolitics is the more immediate variable, spanning Greenland-related tensions on the western flank and the Ukraine overhang to the east. Against that backdrop, the rates impulse has edged in the dollar’s favour, with firmer US activity and sticky services pricing supporting wider spreads and nudging EUR/USD lower. Repeated failures to reclaim the 1.17 area leave the technical tone fragile, with Friday’s US labour report the key catalyst for whether the rate differential story gains traction.

Looking ahead

• US: Challenger job cuts and weekly claims today; Supreme Court tariff ruling tomorrow; NFP on Friday is the core event risk for rates and USD.

• Europe: Watch headlines on US-Denmark talks on Greenland and Ukraine developments.

• UK: Thin near-term calendar; focus shifts to GDP next week, then labour, inflation and PMI data into the BoE February meeting.