USD: Data keeps the Fed patient

Wednesday’s Beige Book pointed to steady activity and a labour market that is softer, but still holding together. Thursday’s jobless claims added a firmer, more data-led footing: claims printed below expectations and the four-week moving average fell by 6.5k to 205k, the lowest in two years.

With little in the data to force the Fed into a faster easing cycle, DXY has kept a constructive tone this week, continuing to post higher highs and higher lows. The index tested resistance near 99.500 yesterday.

We also think political noise has faded as a driver. Powell’s firm response earlier in the week on the DoJ criminal investigation, alongside visible backing from senior US political figures and global central bank voices, appears to have stripped out much of the dollar’s political premium. If anything, it reinforced the Fed’s operational independence at a time when the data still leans hawkish, supporting the case for policy staying on hold.

GBP: A soft session despite a supportive backdrop

Sterling delivered an awkward session on Thursday, weakening broadly despite conditions that would normally favour the pound. UK GDP surprised to the upside and gilt yields rose as markets leaned slightly less dovish on the BoE. Risk appetite also improved, with equities higher and volatility measures such as MOVE and VIX edging lower. Oil fell more than 4%, which typically helps GBP by reducing the UK’s energy import drag. Even so, the pound underperformed, which is the key message.

This fits the pattern we have flagged through the week: GBP has become increasingly sensitive to USD moves relative to its major peers. The resulting underperformance is showing up in the crosses and looks more flow-led than fundamentally driven.

GBP/USD recorded its largest daily decline since November, though the move was still modest by historical standards. Near-term, further USD strength likely keeps pressure on the pair. The 100-day moving average at 1.3366 is the first line of support, and a break would bring 1.33 back into view.

EUR: Consolidation pressures build near key support

EUR/USD heads into the end of the week around 0.3% lower, taking month-to-date losses to roughly 1.3%. That is a restrained response given earlier concerns around renewed threats to Fed independence, which markets have largely absorbed without lasting impact.

The post-December unwind is becoming clearer. The pair’s late-year push towards the 1.18 area is fading as seasonal dollar weakness rolls off, reinforcing the broader range-bound trade that has dominated for months.

EUR/USD is now sitting close to the 200-day moving average near 1.1587, its nearest approach since early 2025. A clean break below would likely encourage a deeper probe towards 1.15.

Positioning signals are starting to align with the softer tone. 1-month EUR/USD risk reversals have turned negative for the first time in more than two months, indicating demand has shifted towards downside protection and away from euro upside exposure.

Looking ahead

Next week brings heavier UK event risk and could finally inject volatility back into GBP, particularly if rate pricing shifts again. For EUR/USD, the 200-day moving average remains the key level to watch, with options markets already leaning more defensive. For the dollar, incoming US labour data remains central to whether the market continues to accept a “higher for longer” policy stance.