US Jobs Data Likely To Set the Tone for February.
Summary:
Eurozone Inflation (Wednesday): Flash CPI data for January sets the stage for the ECB's Thursday meeting, with markets looking for confirmation that price pressures remain under control.
Twin Central Bank Decisions (Thursday): The Bank of England and European Central Bank both meet on February 5. Rate holds are expected from both, but their forward guidance will shape market expectations for spring cuts.
US Nonfarm Payrolls (Friday): January's employment report will reveal whether hiring momentum is returning after 2025's historically weak labour market performance.
This week delivers the most consequential economic events of the month in a compressed three-day sequence. Currency markets will react in stages: Eurozone inflation data arrives Wednesday afternoon, followed by dual central bank decisions Thursday, before Friday's critical US employment numbers.
Friday's US employment report represents the week's primary market driver. December's addition of just 50,000 jobs capped the weakest year for American hiring since 2020, with monthly payroll growth averaging a mere 49,000 positions throughout 2025. The Federal Reserve has responded by placing renewed emphasis on labour market conditions when setting interest rate policy.
Should January deliver another disappointing result, markets will accelerate their pricing of Fed rate cuts, typically weakening the Dollar. A stronger reading above 100,000 jobs would have the opposite effect, supporting the currency and increasing costs for Dollar buyers.
The Bank of England navigates conflicting signals this week. British inflation accelerated to 3.4% in December, maintaining the UK's position as the G7's inflation leader. Despite this, economic growth remains subdued, and Governor Andrew Bailey has publicly stated his expectation for inflation to decline sharply toward target levels by late spring.
The Monetary Policy Committee's internal divisions are evident, with December's quarter-point rate cut passing by the narrowest possible 5 to 4 margin. Thursday's policy statement will provide crucial insight into the committee's near-term intentions. Language suggesting a March rate reduction would likely pressure Sterling lower, while emphasis on persistent inflation risks should lend support to the Pound.
The Euro faces a two-stage evaluation process spanning Wednesday and Thursday. January's flash inflation estimate is forecast at 2.0% annually, a modest increase from December's 1.9% reading but remaining aligned with the ECB's medium-term price stability mandate. Markets expect no change to the current 2.00% deposit rate when policymakers convene the following day.
The Euro's recent appreciation through January adds complexity to the ECB's deliberations. A stronger exchange rate effectively imports disinflation by reducing the local currency cost of imported goods. A dovish tone in Thursday's press conference would likely reverse some of the Euro's January strength, improving entry points for buyers of the single currency.
Events to Watch This Week:
Wednesday, February 4: Eurozone Flash CPI (10:00 GMT) | US ISM Services PMI (15:00 GMT)
Thursday, February 5: Bank of England Rate Decision & Monetary Policy Report (12:00 GMT) | Eurozone Retail Sales (10:00 GMT) | ECB Rate Decision (13:15 GMT)
Friday, February 6: US Nonfarm Payrolls & Unemployment Rate (13:30 GMT) | Canada Employment Report (13:30 GMT)
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