FX markets were driven by shifting rate expectations and political headlines. GBP found early support after senior cabinet members publicly backed Keir Starmer, trimming the UK political risk premium. Meanwhile, the USD softened at the start of the week as weak retail sales and cautious comments from Kevin Hassett fuelled expectations of softer payrolls.
Midweek, a stronger-than-expected US jobs report reversed the USD’s slide, pushing Fed rate-cut expectations from June toward July. However, the move faded as jobless claims rose and Friday’s CPI showed slightly softer headline inflation. Markets now price roughly two to three Fed cuts by year-end, leaving the greenback on the back foot into next week while GBP remains sensitive to upcoming UK inflation data.
*Daily move - against G10 rates as of 17:00 GMT, 13.02.26
** Indicative rates - interbank rates as of 17:00 GMT, 13.02.26
This week, UK data will dominate markets, with job market numbers on Tuesday and CPI on Wednesday the main drivers for sterling. Headline inflation is expected to have eased in January, while wages and unemployment are likely to show ongoing slack, reinforcing the Bank of England’s dovish outlook and expectations for two rate cuts this year. GBP remains highly data-sensitive: weaker readings could see GBP drift lower, while stronger-than-expected job or inflation data may trigger sharp retracements considering last week’s negative sentiment. Any political headlines will be key as well.
In the Eurozone, final French and German CPI numbers, and flash PMIs will provide insight into activity and pricing pressures. PMIs may show resilience despite a strong EUR and external headwinds. ECB wage data will also be monitored for signs of moderating domestic inflation.
The US calendar is busy, with jobless claims, core PCE inflation, 4Q GDP, and PMIs all scheduled. Core PCE and GDP will remain the main focus for Fed expectations, while weekly claims and regional surveys provide early signals on job and business conditions.
Strong job numbers out of Australia should continue to support AUD and hawkish rate pricing – GBPAUD is lower by 2.5% already this month.
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