Slowing US Growth To Reshape Market Outlook.
Summary:
Eurozone CPI Final (Wednesday): The confirmed January inflation reading for the Eurozone releases on February 25, expected to finalise the flash estimate of 1.7%, well below the ECB's 2% target.
US Durable Goods Orders (Thursday): January's preliminary figures publish on February 26, providing the first major gauge of US manufacturing and business investment demand for 2026.
US Producer Price Index (Friday): January's PPI arrives on February 27, offering a critical upstream inflation signal that directly informs expectations for the Federal Reserve's next move.
Three major data releases last week reshaped the outlook across all three major currency pairs. Each told a markedly different story.
America's economy slowed far more sharply than anticipated in the fourth quarter of 2025. GDP expanded at an annualised rate of just 1.4%, a dramatic deceleration from the 4.4% recorded in Q3 and well below the 3.0% consensus forecast. Consumer spending slowed to 2.4% from 3.5%, with goods purchases registering an outright decline of 0.1%. The report provided the clearest evidence yet that the US economy lost momentum into year end, and places additional pressure on this week's manufacturing and producer price data to indicate whether that weakness has continued into the new year.
The Federal Reserve's January meeting minutes, released last Tuesday, added a hawkish layer to an already complex picture. Several officials raised the possibility of rate increases if inflation proves persistent, and a majority concluded that downside risks to employment have moderated. The Committee expressed concern that progress toward the 2% inflation objective may be slower and more uneven than previously expected, particularly given tariff-driven pressures on core goods prices. For Dollar holders, the minutes suggest the Fed is in no rush to cut rates, which typically supports the currency. However, last week's weak GDP figure complicates that picture and is likely to keep the Dollar range bound until clearer data emerges.
Sterling received a double dose of bad news last week. UK unemployment rose to 5.2% for the three months ending December, its highest level in nearly five years, with youth unemployment climbing to 16.1%. Average wage growth slowed to 4.2% annually, down from a revised 4.4% in the previous period, and private sector pay growth eased further to 3.4%. The following morning, UK CPI for January came in at 3.0%, down from December's 3.4% and the lowest reading since March 2025. The combination of falling inflation and a deteriorating labour market has strengthened the case for a Bank of England rate cut in March, placing Sterling under sustained pressure heading into the week.
The Eurozone enters the week with its final January inflation reading due on Wednesday. The flash estimate showed CPI falling to 1.7%, dropping below the ECB's 2% target for the first time since late 2024. Core inflation eased to 2.2%. Markets are not expecting significant revisions, but confirmation of sub-target inflation would reinforce the view that the ECB has room to ease policy if the growth outlook deteriorates. For Euro buyers, a dovish shift in ECB communication in the coming weeks could weaken the single currency, improving entry points for those converting into Euros.
Friday's US PPI release carries particular weight this week. The Producer Price Index measures price changes at the factory gate and is widely used as a leading indicator for consumer inflation. After December's PPI rose 3.0% annually, January's reading will be scrutinised for signs that upstream price pressures are easing or building. A higher than expected figure would revive Dollar strength by reinforcing the Fed's cautious stance. A softer reading would support the case for eventual rate cuts and could weigh on the currency.
Events to Watch This Week:
Tuesday, February 24: US Consumer Confidence
Wednesday, February 25: Eurozone CPI Final
Thursday, February 26: US Durable Goods Orders Preliminary
Friday, February 27: US Producer Price Index
With the Federal Reserve on hold, UK rate cut expectations building, and Eurozone inflation falling below target, currency markets face a period of competing forces. Contact our dealing team to discuss how this week's data could affect your upcoming transfers and whether acting ahead of Friday's PPI release makes sense for your requirements.
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