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Market Insight 26-01-2026

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  • Market Insight 26-01-2026

Daily Currency Market Update – 26 January 2026

Market Overview

The new week opens with the US Dollar under heavy pressure as rumours of a joint US–Japan FX intervention continue to dominate global markets. Reports that the Federal Reserve Bank of New York contacted major banks for indicative USD/JPY rates triggered a sharp sell‑off in the Dollar, with the USD Index sliding to four‑month lows near 97.00.

Risk sentiment remains fragile. President Trump’s threat of 100% tariffs on Canada added to market unease, while German business sentiment data confirmed a stalled recovery in Europe’s largest economy. Traders now turn their attention to Wednesday’s Federal Reserve and Bank of Canada policy decisions, both expected to leave rates unchanged.

GBP/EUR

GBP/EUR holds around 1.1520, supported by a stable UK outlook and weak German sentiment.

Key drivers:

  • Germany’s IFO Business Climate Index remained stuck at 87.6, below expectations of 88.1.
  • Expectations slipped to 89.5, confirming fragile economic momentum in the Eurozone.
  • Eurozone PMIs last week were mixed, offering little support to the single currency.
  • Sterling remains steady after strong UK PMIs and a rebound in Retail Sales.

The UK calendar is light this week, leaving GBP/EUR driven by sentiment and positioning ahead of the February BoE meeting. MPC members have recently stressed caution, citing persistent wage and inflation risks despite the Bank’s broader easing bias.

Outlook: GBP/EUR likely to remain range‑bound unless Eurozone data deteriorates further or BoE expectations shift.

GBP/USD

GBP/USD climbs to 1.3690, rising 0.55% as the Dollar slumps on intervention fears.

Drivers:

  • Rumours of coordinated US–Japan FX intervention hammered the Dollar.
  • The USD Index fell to 96.94, its lowest since September.
  • Strong US Durable Goods Orders (+5.3% m/m) were ignored as traders focused on policy risk.
  • UK PMIs and Retail Sales continue to underpin Sterling.

Markets expect the Fed to hold rates at 3.50%–3.75% on Wednesday, but Powell’s guidance will be crucial. Money markets still price ~44 bps of easing by year‑end.

Outlook: GBP/USD remains supported while intervention speculation persists. Fed communication is the next major catalyst.

EUR/USD

EUR/USD trades near 1.1860, holding close to four‑month highs.

Key factors:

  • USD weakness driven by intervention fears and trade uncertainty.
  • German IFO data confirmed sentiment remains subdued at 87.6.
  • Trump’s threat of 100% tariffs on Canada added to risk aversion.
  • Durable Goods Orders and PCE inflation were USD‑supportive, but overshadowed by FX concerns.

Outlook: EUR/USD direction hinges on Fed communication and whether intervention speculation intensifies.

AUD/USD

AUD/USD advances to ~0.6930, supported by domestic strength and USD weakness.

Supportive factors:

  • Markets await Australia’s Q4 CPI, expected to rise to 3.6% y/y.
  • Strong PMIs and labour market data reinforce expectations of an RBA hike next week (60% probability).
  • The US Dollar remains pressured ahead of the Fed Chair announcement and FOMC meeting.

Outlook: AUD/USD remains sensitive to Wednesday’s CPI release. A hotter print could push the pair toward 0.70.

USD/CAD

USD/CAD falls toward 1.3680, approaching six‑month lows.

Drivers:

  • USD weakness amid intervention fears.
  • Oil prices surged more than 3% on Middle East tensions, boosting CAD.
  • Trump’s threat of 100% tariffs on Canada failed to dent CAD strength.
  • Markets expect both the BoC and Fed to hold rates this week.

Outlook: USD/CAD may test 1.3640 unless the Fed delivers a hawkish surprise.

USD/CHF

USD/CHF plunges to ~0.7760, its lowest level since 2011.

Key points:

  • USD hammered by intervention rumours and concerns over Fed independence.
  • CHF strengthened further after Goldman Sachs called it the best global FX hedge against central‑bank subordination risks.
  • Markets wary ahead of Trump’s imminent announcement of the next Fed Chair.
  • SNB’s Schlegel warned of possible negative inflation prints but dismissed the likelihood of negative rates.

Outlook: USD/CHF remains vulnerable. Only a strong Fed message or easing geopolitical tensions could stabilise the pair.

Final Summary

The Dollar remains under intense pressure as markets brace for potential FX intervention and await the Fed’s policy decision. Sterling outperforms on strong domestic data, the Euro holds near multi‑month highs, and the Australian Dollar rallies ahead of key CPI data. CAD strengthens on firmer oil and USD weakness, while CHF surges to its strongest level in over a decade. The week’s direction now hinges on Wednesday’s Fed and BoC decisions.