Dollar Surges as Markets Focus on Key Inflation Data This Week
GBP
GBP/USD has fallen to a fresh low, currently at 1.2163 (interbank), its weakest level since November 2023, while GBP/EUR has also dropped to 1.1894 (interbank), its lowest since November 2024.
Sterling has started the week under pressure after attempting to recover last Friday, weighed down by a lack of confidence in the UK’s economic prospects heading into 2025.
A sharp sell-off in UK bonds led to a sudden rise in government borrowing costs, sparking concerns over the sustainability of public finances.
Speculation about spending cuts and tax increases is further dampening growth prospects, significantly weakening the pound.
Attention this week will focus on Wednesday’s UK inflation data, with December CPI expected to show an annual rise of 2.6%, remaining above the Bank of England’s 2% target. Comments from BoE Deputy Governor Sarah Breeden on Tuesday and MPC member Alan Taylor on Wednesday will also be closely monitored.
No significant events are scheduled for today.
EUR
EUR/USD has dropped sharply, now trading at 1.02240 (interbank), after touching 1.0207, its lowest level since November 2022.
In a "policy dialogue" at the Asian Financial Forum, ECB Chief Economist Philip Lane emphasised the likelihood of further interest rate cuts, stating the need to balance economic growth without being “too aggressive or too cautious” in monetary policy. Persistent expectations of policy easing by the ECB continue to weigh on the euro, with markets anticipating four rate cuts by the summer.
This week’s focus includes euro area industrial production figures and German inflation data on Thursday, culminating in the release of euro area HICP data for December on Friday.
Today’s events (GMT):
03:15 - ECB's Lane Speaks
USD
The Dollar Index, which tracks the greenback against a basket of six major currencies, is at its highest level since November 2022 at 109.98 , extending a rally from last week.
The dollar’s strength has been supported by robust non-farm payrolls data for December, which exceeded expectations and highlighted the resilience of the US labour market.
This has reinforced concerns that a strong labour market, combined with persistent inflation, will lead the Federal Reserve to slow the pace of rate cuts this year.
According to the CME FedWatch tool, traders have priced in a 68.5% chance of a single rate cut following the jobs report. The next major focus is Wednesday’s US CPI data, with December inflation expected to rise by 2.9% year-on-year.
No significant events are scheduled for today.
CAD
USD/CAD is currently trading at 1.4424 (interbank).
On Friday, Canada’s economy added 90,900 jobs in December, nearly four times the forecasted number and the highest level in almost two years, reducing expectations of a rate cut later this month, though one is still likely. Most of the jobs gained were full-time positions, and the unemployment rate unexpectedly fell to 6.7%.
Markets now anticipate a 61% chance of a 25-basis-point rate cut on 29 January, when the Bank of Canada announces its next decision. Meanwhile, Canadian officials, including Foreign Affairs Minister Mélanie Joly, are heading to Washington this week to push back against potential US tariffs. Federal Industry Minister François-Philippe Champagne is also expected to address the Canadian Club in Toronto on Tuesday, amid speculation about his potential bid to replace Prime Minister Trudeau as Liberal Party leader.
Oil prices have risen sharply this morning following US sanctions on Russia’s oil sector, with Brent crude up 1.8% at $81.22 per barrel and West Texas Intermediate crude rising 1.7% to $77.06 per barrel.
No significant events are scheduled for today.
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