EUR/GBP Remains Steady Ahead of UK GDP Data
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EUR/GBP remains stable near 0.8650 in Tuesday’s European session, as market traders await the UK’s November GDP[1] release later this week. The currency pair remains range-bound as markets evaluate differing central-bank policies. In the UK, expectations indicate a gradual easing cycle by the Bank of England (BoE). Although inflation exceeds the BoE’s 2% target[2], weaker labour market conditions support continued expectations for rate-cuts.
A joint survey released on Monday by the Recruitment and Employment Confederation (REC) and KPMG reported[3] subdued hiring demand in December, despite rising wage growth. Firms continue to limit recruitment due to higher employer social security contributions introduced last year, raising concerns about employment risks that may persist into 2026[4].
Markets’ focus shifts to Thursday’s UK GDP data for November, with expectations of flat growth, following a 0.1% contraction in October[5]. Industrial and manufacturing production figures released with GDP may also influence near-term sterling sentiment[6].
For the euro, the European Central Bank (ECB) is expected to maintain its current policy, as inflation is near the ECB’s 2% target. In the near-term as the central bank adapts a wait-and-see approach, the broader risk sentiment rather than domestic data continues to drive the euro[7].
Since neither central bank is expected to make immediate policy shifts, EUR/GBP is likely to remain anchored near current levels until UK growth data provides further direction. EUR/GBP remains rangebound, with neither currency showing enough conviction to break away as UK and eurozone central bank outlooks stay diverged.
GBP/USD Firms as Fed Independence Concerns Weigh
GBP/USD traded firm near 1.3470 in early European trade on Tuesday, underpinned by renewed US dollar weakness amid concerns over Federal Reserve (Fed) independence[8].
The uptick comes after Fed Chair Jerome Powell, confirmed that the US Department of Justice has issued subpoenas testimony on cost overruns for the Fed’s $2.5 billion Washington headquarters renovation. Powell described the probe as an attempt to pressure the central bank into lowering interest rates, reviving concerns over political influence on monetary policy[9][10].
These developments have weighed on the dollar, providing near-term support for sterling. However, gains in the pound remain capped by expectations that the Bank of England (BoE) will continue easing policy this year. The BoE lowered rates to 3.75% in December and is widely expected to keep policy steady in February[11], with markets anticipating the next 25 basis point cut (bps) cut in March or April.
Markets await the US December CPI[12] data due today, with both headline and core inflation forecasted at 2.7% YoY. Market traders will closely watch these figures for signals on the Fed’s rate trajectory[13]. Markets currently anticipate two Fed cuts starting mid-year, though an upside inflation print could challenge those expectations. GBP/USD continues to trade with a firm tone, supported by steady UK fundamentals while the dollar remains cautious ahead of key US data.
AUD/USD Slips as Confidence Fades Before US CPI
AUD/USD trades lower near 0.6710 on Tuesday as the Australian Dollar softens following weaker domestic confidence data and cautious positioning ahead of US inflation figures. Australia’s Westpac Consumer Confidence fell 1.7% in January after a steep 9.0% decline[14] in December, marking a three-month low. The data highlights ongoing household caution as elevated interest rates continue to weigh on spending[15].
Labour market signals remain mixed with ANZ Job Ads down 0.5% in December[16], while household spending rose 1.0% in November[17], a slower pace than October’s revised 1.4% gain[18]. The data keeps the Reserve Bank of Australia’s (RBA’s) policy outlook in flux[19].
RBA officials continue to push back against expectations of a near-term rate cut[20]. Deputy Governor Andrew Hauser recently noted inflation data remains in line with forecasts and that rate cuts are unlikely in the immediate future[21]. Markets focus now shifts to the upcoming Australia’s quarterly CPI[22] figures for further policy signals.
In the US, the dollar remains steady ahead of December CPI data. Markets anticipate the Fed to hold rates steady at its January meeting, with futures pricing a 95% probability of no change[23]. US payroll growth[24] slowed to 50,000 in December, while the unemployment rate dipped to 4.4%, reinforcing the central bank’s cautious tone[25] and leaving AUD/USD reactive to inflation surprises. AUD/USD stays under pressure, as softer risk appetite and domestic uncertainty limit upside despite a stable global backdrop.
USD/JPY Near Highs Since July 2024 as Yen Faces Pressure
USD/JPY extends gains towards 159.00, marking its highest level since July 2024. The yen remains under sustained pressure amid political uncertainty, central bank policy ambiguity, and elevated geopolitical risks.
Speculation that Japanese Prime Minister Sanae Takaichi may call a snap election as early as February has increased expectations for expansionary fiscal policy[26], further weakening confidence in the yen[27]. Markets remain uncertain about the timing of the Bank of Japan’s (BoJ) next rate hike, despite ongoing signals that policy normalisation is possible.
Geopolitical tensions have intensified. Last week, China imposed an immediate ban on exports of certain rare earth elements to Japan following diplomatic disputes over Taiwan, raising supply-chain concerns for Japanese manufacturers[28].
Japan’s Finance Minister Satsuki Katayama expressed concern about the yen’s continued decline to US Treasury Secretary Scott Bessent[29], emphasising limited tolerance for further weakness. The risk of verbal intervention has increased. However, these efforts have not stopped the currency’s slide[30].
The US dollar remains supported despite ongoing concerns about Fed independence. Markets now anticipate two Fed rate cuts in 2026, a slower pace than previously anticipated, in contrast to expectations that the BoJ will continue tightening. Market’s focus now shifts to US CPI data due today, which could influence near-term dollar momentum. USD/JPY holds elevated levels, with yen weakness persisting as markets wait for clearer direction from Japanese policymakers.
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