By Michael Mitchell
The UK’s inflation figures for January were released this week, showing a drop to a 3.0% annual rate, matching market forecasts and marking its lowest level since March 2025. This cooling trend is driven by moderation in transport costs and food prices. Core inflation fell to 3.1%, its lowest in over four years, increasing the likelihood of a BoE interest rate cut in March.
Following similar results in the past, the market direction will largely be driven by interest rate expectations and incoming economic data. In the UK, growing speculation that the BoE may begin cutting rates as early as March—amid softer wage growth and rising unemployment— this has created some downward pressure on the Pound, while broader political and economic uncertainty continues to contribute to volatility, with many suggesting that the current Prime Minister may not be the man to carry Labour, or the country forward for much longer.
In the Eurozone, policy differentials remain key, if the ECB holds interest rates steady or signals a slower pace of easing than the BoE, the Euro could find support, particularly if inflation or PMI data surprise to the upside. The best case scenario points to relatively contained trading with modest day-to-day swings, as markets digest UK inflation and labour data. A bullish Sterling outcome would likely require stronger-than-expected UK data that reduces rate cut expectations, while clearer signals of imminent BoE easing or comparatively stronger Eurozone performance could pull GBP/EUR back below the projected range. Overall, volatility is expected to remain moderate, with central bank guidance and macroeconomic releases acting as the primary catalysts.
As the markets adjust over the coming days and weeks, it’s more important than ever to stay close to your Currency Consultant who can help navigate you through these turbulent times!
You may want to discuss contract options with your consultant, with the possibility of locking in your rate in advance of future transactions, an option to mitigate the risk of market volatility.
Here are some key data releases to look forward to next week.
United Kingdom
UK GDP – Preliminary GDP figures for Q4 2025 will be released, indicating the UK’s economic performance.
UK Inflation – January inflation data will be published, influencing the Bank of England’s monetary policy decisions.
UK Retail Sales -December retail sales data will provide insights into consumer spending.
Eurozone
Eurozone GDP – Preliminary GDP figures for Q4 2025 will be released, providing insights into the Eurozone’s economic growth.
Eurozone Inflation – December inflation data will be published, influencing ECB’s monetary policy decisions.
ECB Policy Meeting – The European Central Bank will announce its interest rate decision, impacting the Euro’s value.
United States
US Inflation – January inflation data will be released, impacting global currency markets.
US Retail Sales – December retail sales data will provide insights into US consumer spending.