Dollar Rebounds, Euro Slips as GBP/EUR Climbs to August Highs.
USD – Regaining strength as last week’s selloff is retraced, supported by stronger data and renewed confidence, though upside still hinges on labour market releases and Fed signals.
EUR – Losing momentum as dollar strength dominates, despite some supportive domestic developments and lower inflation in France.
GBP – Cooling after a strong late-January rally, with near-term direction likely dictated by the USD and the upcoming Bank of England decision.
USD:
The dollar pushed higher again yesterday as markets continued to retrace last week’s sharp selloff. A key catalyst was the January ISM manufacturing index, which surged from 47.9 to 52.6, marking the first expansionary reading in a year and helping restore confidence in the US growth outlook.
That said, some uncertainty remains around the data flow. This week’s major labour market releases – JOLTS and non-farm payrolls – have been delayed by the Bureau of Labor Statistics due to the partial government shutdown. However, there is speculation that a House vote as soon as this week could pave the way for these figures to be released relatively quickly.
In the meantime, markets will focus on Fed speakers Barkin and Bowman today, while tomorrow’s ADP employment report and ISM services index should offer interim insight into labour market and demand conditions. Overall, the USD remains well supported, but conviction may stay somewhat tentative until official jobs data is back on the table.
EUR:
EURUSD has now given back more than half of the gains made since mid-January, with renewed dollar strength once again dominating the FX landscape. While the eurozone backdrop has not materially deteriorated, it is struggling to compete with improving US data momentum.
Today’s main regional focus is France, where the 2026 budget was successfully approved yesterday. This removes near-term political risk and avoids the need for another change in prime minister. While the budget was necessarily a compromise – delivering limited fiscal tightening due to a gridlocked National Assembly following the 2024 election – it is still a modest positive for stability.
French CPI this morning fell to 0.4% year-on-year, its lowest level in five years, reinforcing the broader disinflationary trend in the euro area. While this keeps ECB rate cuts on the horizon, the euro may struggle to regain upside traction unless USD momentum fades or the broader risk backdrop turns more supportive.
GBP:
After rallying around 4% from trough to peak in late January, GBPUSD has cooled by just under 1.4%, with price action still largely driven by moves in the dollar rather than domestic factors. In contrast, GBPEUR extended higher yesterday afternoon, reaching its highest level since August, reflecting relative euro softness.
The UK data calendar is quiet today, leaving sterling without obvious near-term catalysts. Attention is now firmly on Thursday’s Bank of England decision, where markets will look for guidance on the timing and pace of potential rate cuts.
Until then, GBP is likely to trade reactively, taking its cues from USD dynamics and broader risk sentiment, with upside capped unless the BoE delivers a notably less dovish message than currently priced.