Market Insight 29-01-2026

• Written by: Ian Morley
• 29/01/2026

Daily Currency Market Update – 29 January 2026

Market Overview

The US Dollar’s brief rebound stalled overnight as concerns over Federal Reserve independence, geopolitical risks, and political uncertainty overshadowed the Fed’s cautious rate hold. Chair Powell acknowledged that the US economy enters 2026 on “a firm footing,” but inflation remains elevated and job gains modest.

Treasury Secretary Scott Bessent attempted to calm markets, reaffirming the US commitment to a strong dollar and denying any involvement in Japanese FX intervention. President Trump, however, continued to praise the Dollar’s depreciation and hinted again at an imminent announcement of a new Fed Chair.

Geopolitical tensions escalated after Trump warned Iran that “time is running out” to negotiate a nuclear deal, prompting a sharp response from Tehran. Meanwhile, US political negotiations to avert a government shutdown added another layer of uncertainty.

GBP/EUR

GBP/EUR climbs back to 1.1550, supported by Sterling resilience and cautious ECB commentary.

Key drivers:

• UK data flow is light this week, leaving GBP driven by sentiment and expectations ahead of the 5 February BoE meeting.
• Reuters polling shows the BoE is widely expected to hold rates at 3.75%, with only a small majority expecting a cut in March.
• Strong UK inflation and Retail Sales data continue to limit the pace of expected BoE easing.
• ECB officials, including Kocher and Simkus, emphasised flexibility and warned that downside inflation risks remain significant.
• Eurozone GDP and German GDP (Friday) now in focus.

Outlook: GBP/EUR likely to consolidate unless Eurozone data surprises or BoE expectations shift.

GBP/USD

GBP/USD holds above 1.3800, hovering near four‑year highs.

Drivers:

• The Fed delivered a lacklustre hold, offering no clear signal on future cuts.
• Powell avoided dovish commitments, disappointing markets hoping for clearer easing guidance.
• USD remains pressured by political uncertainty, including Trump’s pending Fed Chair announcement.
• UK Shop Prices Index and last week’s strong PMIs continue to underpin Sterling.

Outlook: GBP/USD remains sensitive to Fed‑related headlines. A dovish shift from Powell or renewed USD selling could push the pair back toward recent highs.

EUR/USD

EUR/USD trades near 1.1980, consolidating below 1.2000.

Key factors:

• USD remains weak amid concerns over Fed independence and political unpredictability.
• Trump’s comments about replacing Powell and lowering rates continue to weigh on the Dollar.
• The Fed held rates at 3.50%–3.75%, with Powell noting stabilising labour conditions but cooling momentum.
• ECB expected to keep rates steady through mid‑2026, reinforcing EUR stability.

Outlook: EUR/USD direction hinges on US Jobless Claims and Eurozone sentiment data later today.

AUD/USD

AUD/USD rises toward 0.7050, supported by surging RBA rate‑hike expectations.

Supportive factors:

• Australia’s CPI jumped to 3.8% y/y, above expectations.
• Markets now price a 70%+ probability of a 25 bp RBA hike next week.
• Export prices rose 3.2% q/q, reinforcing Australia’s improving trade dynamics.
• USD strength is capped by political uncertainty and intervention fears.

Outlook: AUD/USD remains well‑supported; a break above 0.7100 is possible if USD softness persists.

USD/CAD

USD/CAD slides to ~1.3535, its lowest level since October 2024.

Drivers:

• Oil prices surged to a four‑month high, supported by geopolitical risks and strong Chinese demand.
• A surprise drop in US crude inventories added to bullish oil sentiment.
• USD remains pressured by expectations of two Fed cuts in 2026 and concerns over Fed independence.
• The BoC held rates at 2.25%, citing elevated uncertainty but offering little direction for CAD.

Outlook: USD/CAD bias remains lower; a test of 1.3538–1.3556 is possible unless USD sentiment improves.

USD/CHF

USD/CHF tumbles to ~0.7650, weighed down by safe‑haven flows and US policy uncertainty.

Key points:

• USD remains fragile amid fears of a partial US government shutdown.
• Heightened US–Iran tensions boosted demand for CHF.
• Fed’s cautious stance offered limited support to the Dollar.
• Swiss December Trade Balance and US Jobless Claims due later today.

Outlook: USD/CHF remains vulnerable; geopolitical risk and Fed independence concerns continue to favour CHF strength.

Final Summary

The Dollar’s recovery faltered as markets refocused on Fed independence concerns, geopolitical tensions, and political uncertainty. Sterling held firm above 1.38, the Euro consolidated below 1.20, and the Australian Dollar extended gains on rising RBA expectations. CAD strengthened on higher oil prices, while CHF surged on safe‑haven demand.