FX Update: Dollar Rebounds, Central Banks in the Spotlight.

USD – Has regained some strength as markets grow more comfortable owning dollars, but gains remain data-dependent.

EUR – Still relatively well supported, though recent euro strength has eased as the dollar rebounds.

GBP – Quietly resilient, but direction hinges on the Bank of England and policy signals this week.

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USD:

The dollar has firmed after Kevin Warsh was announced as Trump’s pick for Fed Chair, easing concerns that the Fed could be pushed into aggressive rate cuts. Markets are comfortable that Warsh would not be a political “puppet,” and expectations remain restrained with only two rate cuts priced for 2026. As a result, EUR/USD has fallen around 2% from last week’s peak.

Attention now turns to a packed US data week, starting with ISM manufacturing, followed by JOLTS, ADP employment, ISM services and Friday’s non-farm payrolls. Consensus expects 65,000 jobs added in January, which could shape near-term dollar direction.

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EUR:

The euro’s path this week will be driven mainly by Eurozone CPI and the ECB decision. Headline inflation is expected to cool to 1.7%, making further rate cuts in the near term unlikely.

While there was some discussion last week around whether a stronger euro could eventually justify policy action, current levels are well below where this would become a serious concern. Overall, the euro remains stable, but recent gains may be harder to extend if the dollar continues to recover.

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GBP:

For sterling, the focus is firmly on the Bank of England meeting on Thursday. The pound has quietly outperformed in recent weeks, with GBP/EUR up around 2% since November, despite broader market volatility.

The Bank is widely expected to hold rates steady, with only one cut fully priced for the year, as policymakers continue to wrestle with sticky inflation and rates already sitting in the upper neutral range. Market reaction is likely to depend on the vote split and the tone of the statement, rather than the decision itself.

Economic Calendar