By James Caley
As markets open for the first full trading week of the year, activity is gradually picking up after the festive break. With no major UK data scheduled this week, sterling is likely to take its lead from international developments, particularly from the US and Europe, as normal trading conditions return and attention shifts back to interest-rate expectations.
The week begins this afternoon with the US ISM Manufacturing PMI for December, which will offer an early indication of how the US economy ended the year. While manufacturing remains a weaker part of the US economy, any deviation from expectations could influence near-term dollar sentiment. A stronger reading would likely support USD, placing pressure on both GBP/USD and EUR/USD, while a softer outcome could see the dollar ease as markets reassess the growth outlook.
Midweek attention turns firmly to inflation. Tuesday and Wednesday bring a run of European price data, including French and German preliminary CPI, followed by Eurozone flash inflation. These releases will be important for shaping expectations around the European Central Bank, with markets watching closely for signs that inflation continues to cool. Softer readings would reinforce expectations of ECB rate cuts later in the year, potentially weighing on the euro and offering support to GBP/EUR if UK fundamentals remain unchanged.
US data regains focus on Wednesday afternoon with the ISM Services PMI, JOLTs Job Openings, and later in the week the key labour-market releases, including Non-Farm Payrolls and the US Unemployment Rate. These figures remain central to interest-rate expectations for the Federal Reserve. Evidence of continued labour-market resilience would underpin the dollar, while weaker employment data could see GBP/USD and EUR/USD find support as rate-cut expectations are brought forward.
Elsewhere, Thursday’s Australian Trade Balance is the main release of note for GBPAUD, though broader risk sentiment and US data are still likely to dominate price action. As normal trading conditions return, this week’s international data should play a key role in shaping sterling’s near-term direction across the major currency pairs.