Central Bank Week Dominates Exchange Rate Outlook.
Summary:
Federal Reserve Decision (Wednesday): The headline event is the FOMC's January rate announcement, scheduled for 19:00 GMT on Wednesday. While no change is expected, Chair Powell's press conference at 19:30 GMT could shift US Dollar sentiment if forward guidance alters market expectations.
Eurozone GDP Flash (Friday): The first estimate of Q4 growth for the currency bloc arrives at 10:00 GMT on Friday, with both Germany and the wider Eurozone reporting simultaneously. These numbers will determine whether the Euro can extend its recent gains.
UK Data Quiet: Sterling faces a muted calendar this week, with only Friday's Nationwide house price data scheduled. This leaves the Pound vulnerable to moves in its major peers, particularly the Dollar following the Fed meeting.
The final full trading week of January centres on monetary policy. With the Federal Reserve expected to hold rates steady at its two-day meeting, attention shifts to Chair Powell's commentary on the inflation outlook and the timing of future cuts. For the Euro, Friday's GDP data offers a critical gauge of momentum heading into 2026, especially after the recent strength against the Dollar. Sterling operates largely as a bystander this week, reacting to broader USD and EUR dynamics rather than driving its own narrative.
The US Dollar has been under modest pressure this month, losing ground against the Euro after a strong finish to 2025. Wednesday's FOMC meeting is unlikely to produce a policy shift. All economists surveyed expect the Federal Reserve to leave rates unchanged in the 3.50% to 3.75% range. The focus instead falls on Jerome Powell's press conference, where any hints about the pace of disinflation or labour market resilience could swing the Dollar. If Powell signals comfort with holding rates for an extended period, the Greenback may stabilise after recent losses. A softer tone on inflation risks, however, could accelerate the pullback.
For the Euro, Friday is decision day. The flash GDP estimate for Q4 is released alongside Germany's preliminary growth figures in the morning session. Markets are looking for quarterly growth of 0.2% across the Eurozone, down slightly from the 0.3% recorded in Q3. Germany is expected to print 0.2% growth after two consecutive quarters of stagnation. A positive surprise here would reinforce the Euro's recent strength, potentially pushing EUR/USD towards the upper end of its January range. A disappointment, particularly if Germany contracts, would weigh heavily on the single currency.
Sterling lacks major domestic catalysts this week. The only scheduled UK release is Friday's Nationwide house price index for January. While housing data provides useful insight into consumer confidence, it rarely moves the Pound in isolation. Instead, traders holding Sterling positions should watch Wednesday's Fed decision and Friday's Eurozone GDP closely. A dovish Powell combined with solid European growth would likely see GBP/USD supported and EUR/GBP under pressure. The opposite scenario would favour Sterling buyers against the Euro but could challenge the Pound against the Dollar.
Events to Watch This Week:
Monday, January 26: Germany Ifo Business Climate (January)
Tuesday, January 27: US Consumer Confidence (January)
Wednesday, January 28: US Federal Reserve Interest Rate Decision & Press Conference
Thursday, January 29: US Jobless Claims & Trade Balance (November)
Friday, January 30: Eurozone GDP (Q4 Flash) | Germany GDP (Q4 Flash) | Germany CPI (January Preliminary) | US Producer Price Index (December)
This week presents two clear focal points for currency markets. Wednesday afternoon will test whether the Federal Reserve's messaging can stabilise the Dollar after its recent weakness, while Friday morning offers the Eurozone an opportunity to validate the Euro's January gains. For those monitoring exchange rates, volatility is likely to concentrate around these two sessions as traders digest fresh policy guidance and growth data.
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