Last week was a volatile yet relatively predictable one, with markets digesting further tariff announcements from President Trump and the Bank of England’s 25bps interest rate cut. Despite these developments, Sterling ended the week largely unchanged at 1.24 against the U.S. Dollar and 1.20 against the Euro, meaning that while the week was eventful, market movements remained within expected ranges.
Looking ahead to the second week of February, there are several key events that could influence exchange rates. While political uncertainty remains a background theme, economic data releases and central bank commentary will be the primary drivers of market sentiment.
Monday is set to be quiet, but Tuesday sees an important speech from Bank of England Governor Andrew Bailey, following last week’s rate cut. With markets already pricing in three rate cuts this year, traders will be listening closely to any hints about how aggressive the BoE plans to be in the coming months. If Bailey suggests that rate cuts may be slower or fewer than expected, Sterling could find some support. However, if his comments reinforce expectations of further easing, the Pound may struggle. Later in the day, Federal Reserve Chair Jerome Powell will testify, though markets are not expecting any significant surprises. That said, Powell’s remarks on inflation, monetary policy, and economic growth will still be closely scrutinized, as traders look for clues on how long the Fed will hold interest rates steady.
Wednesday brings one of the biggest data releases of the week—U.S. inflation figures. Current expectations suggest that core inflation will rise to 0.3%, while headline inflation is forecasted to drop slightly to 0.3%. If these numbers align with forecasts, it could reinforce the view that inflation remains stubborn but under control, allowing the Fed to maintain its cautious stance on rate cuts. A stronger inflation reading could boost the Dollar, as it would support the argument that rate cuts may be pushed further into the future. However, if inflation comes in weaker than expected, it could weaken the Greenback by reviving expectations of earlier rate cuts. Powell will also deliver the second part of his testimony on Wednesday, which could add further volatility to the U.S. Dollar if he shifts his tone or provides additional policy insights.
The focus shifts to the UK on Thursday with the release of GDP data, which is expected to show 0.1% month-on-month growth but a -0.1% contraction for the quarter. This would suggest that while the UK economy is not in deep trouble, it is teetering on the edge of stagnation. A negative reading could weigh on Sterling, particularly if it reinforces concerns about the UK’s economic resilience. The GDP release will be followed by trade balance figures and industrial and manufacturing production data, which are expected to show slight improvements. If these numbers come in stronger than expected, they could offset some of the negativity surrounding GDP and offer the Pound some relief. Meanwhile, across the Atlantic, the U.S. releases Producer Price Index (PPI) and jobless claims data, which could introduce some short-term volatility to the Dollar.
Friday’s attention will turn to the Eurozone, with the release of GDP figures. Expectations suggest zero growth, which could pressure the Euro if confirmed. If the data suggests further economic stagnation, traders may increase bets that the European Central Bank will need to cut rates sooner than expected, which could weigh further on the Euro. On the other hand, any upside surprise could help stabilize the single currency.
Overall, this week presents a mix of central bank rhetoric and economic data that could create notable currency movements. The biggest risk for Sterling remains Thursday’s GDP release, as a weak reading could trigger further downside. The U.S. Dollar will be largely influenced by Wednesday’s inflation data and Powell’s testimony, both of which could set the tone for Fed rate expectations. Meanwhile, the Euro will be vulnerable to Friday’s GDP data, with stagnation concerns still weighing on sentiment.
With so much uncertainty still shaping market movements, timing is crucial for those making large currency exchanges. If you’re looking to optimize your FX transactions, staying informed and being proactive could make a significant difference. If you need guidance on navigating the markets this week, feel free to reach out.