FX Markets Brace for Payrolls, PMIs and Policy Signals
Key Highlights
- The US dollar steadied after recent weakness, supported by safe-haven demand from Middle East tensions.
- GBP/USD remains sensitive to dollar direction, with sterling lacking major UK data catalysts this week.
- EUR/USD focus turns to eurozone inflation, with any upside surprise likely to support ECB rate-hike expectations.
- GBP/EUR remains capped near recent ranges as markets weigh cautious Bank of England messaging against firmer ECB pricing.
- Friday’s US non-farm payrolls report is the key event risk for USD pairs.
Market Recap
Last week, FX markets were driven by a mix of geopolitical risk, central bank expectations and softer growth signals. The dollar regained some defensive support as Middle East tensions kept oil and safe-haven flows in focus. Sterling slipped during the week, pressured by risk aversion, domestic political uncertainty and softer UK momentum, although GBP/USD remained broadly supported near the mid-1.30s. EUR/GBP moved higher as the euro benefited from firmer ECB expectations, with markets increasingly alert to inflation risks from higher energy prices. EUR/USD held relatively steady, helped by resilient eurozone inflation expectations but capped by renewed dollar demand. Overall, GBP, EUR and USD markets remain range-bound but vulnerable to sharp moves around data surprises.
Our Thoughts for the Week Ahead
The week ahead is likely to be dominated by US economic data, with markets looking for further evidence on the strength of the world’s largest economy and the potential path of Federal Reserve policy. Friday’s Non-Farm Payrolls report will undoubtedly be the headline event, with investors closely monitoring employment growth, wage inflation and the unemployment rate. A stronger-than-expected report could support the US dollar by reducing expectations for future Fed rate cuts, while any signs of labour market weakness may put renewed pressure on the greenback.
Sterling faces a relatively lighter domestic calendar, leaving GBP largely driven by developments overseas. However, several appearances from Bank of England Governor Andrew Bailey throughout the week could provide insight into the Bank’s thinking on inflation and interest rates. While GBP/USD is likely to take its lead from the dollar, GBP/EUR may remain particularly sensitive to any divergence between ECB and BoE policy expectations.
For the euro, attention will centre on Tuesday’s Flash CPI estimates. With inflation remaining a key consideration for the European Central Bank, any upside surprise could reinforce expectations that policymakers will maintain a cautious approach towards easing policy, potentially supporting the single currency. Markets will also be listening carefully to comments from ECB President Lagarde on Thursday for further guidance on the economic outlook.
Overall, we expect market volatility to increase as the week progresses, culminating in Friday’s closely watched US labour market data.
Economic Calendar
Monday
1:30 PM USD FOMC Member Powell Speaks
3:00 PM USD ISM Manufacturing PMI
3:00 PM USD ISM Manufacturing Prices
Tuesday
10:00 AM EUR Core CPI Flash Estimate y/y
10:00 AM EUR CPI Flash Estimate y/y
3:00 PM GBP BoE Governor Bailey Speaks
3:00 PM USD JOLTS Job Openings
Wednesday
1:15 PM USD ADP Non-Farm Employment Change
3:00 PM USD ISM Services PMI
3:00 PM USD Treasury Secretary Bessent Speaks
Thursday
9:00 AM EUR ECB President Lagarde Speaks
1:30 PM USD Unemployment Claims
4:40 PM GBP BoE Governor Bailey Speaks
Friday
1:30 PM USD Average Hourly Earnings m/m
1:30 PM USD Non-Farm Employment Change
1:30 PM USD Unemployment Rate
7:00 PM GBP BoE Governor Bailey Speaks