GBP: BoE decision and politics in the driving seat

The Bank of England is expected to keep Bank Rate at 3.75% today, with the Committee still split on how quickly it can ease. Inflation remains above 3%, wage expectations are sticky, and the tone is likely to stay cautious rather than guiding markets towards near-term cuts. A 7–2 hold looks the most likely outcome, with any hint of discomfort over inflation persistence supportive for the front end and, by extension, sterling.

In FX, GBP has already done much of the heavy lifting this year, but a hawkish hold could still underpin GBP/USD, while GBP/EUR remains a key barometer for UK-specific risk. The technical picture has improved, with the cross having reclaimed its 200-day moving average after a prolonged period below it, though the euro’s role as the main USD alternative can still blunt upside in GBP/EUR.

Domestic politics has re-entered the frame. The latest Westminster headlines have fed into a modest sterling wobble versus the euro, reinforcing that headline risk could be a more persistent feature for GBP in 2026, particularly where it intersects with fiscal credibility.

USD: mixed macro signals, DXY stabilises as risk tone turns

US data yesterday painted a broadly steady activity backdrop alongside softer labour momentum. ADP showed 22k private payroll gains for January versus 45k expected, a cooler print but still within the recent range for a noisy series. Markets largely looked through it. ISM services held at 53.8, consistent with resilient activity, though new orders eased to 53.1 from 56.5, a reminder that forward indicators are not immune to a choppier start to the year.

The dollar has been better supported this week, helped by a firmer risk-off tilt as crowded pro-cyclical positioning unwinds. Recent reversals in high-beta FX have looked more like positioning and equity sensitivity than rates-driven moves. US tech weakness, in particular, has kept broader risk appetite in check, and that has tended to favour the dollar at the margin.

On the policy narrative, Treasury Secretary Bessent reiterating support for a strong-dollar stance may also have contributed to keeping the USD underpinned. Technically, the dollar index appears to have bounced cleanly from the 97.30 area, with 98.00 the near-term reference point, though the case for a sustained move materially higher still looks incomplete.

Today’s focus is on second-tier labour indicators. JOLTS will be watched closely for layoffs, and the Challenger report could look punchier given recent corporate announcements, even if that does not necessarily translate into realised job losses.

EUR: softer inflation keeps the tone cautious into the ECB

Eurozone inflation eased in January, with headline HICP at 1.7% y/y and core printing a touch softer than expected at 2.2%, led by lower services inflation. The direction of travel reinforces a disinflationary bias and may reduce the urgency of any pushback against EUR strength in today’s ECB communication, even if the topic remains on the radar.

Even so, the euro’s response to the data was contained, which argues for limited follow-through unless President Lagarde leans more explicitly into downside inflation risks or flags discomfort with currency strength. Beyond the meeting, eurozone retail sales are the main near-term data watchpoint.

Looking ahead

• BoE rate decision and vote split, plus guidance on the pace of easing

• US JOLTS with emphasis on layoffs, alongside Challenger job-cut announcements

• ECB decision and press conference, with any reference to EUR strength and disinflation

• Risk tone via US equities, particularly tech, as positioning remains sensitive

• DXY 98.00 as the near-term technical marker, with upside likely capped without stronger macro confirmation