Monthly Currency Report Summary – January 2026
Overview
January marked a volatile and sentiment-driven start to 2026 for currency markets, with geopolitical risk, shifting central bank expectations, and sharp cross-market flows driving price action across the majors. Unlike the slower and more technical conditions that dominated late 2025, January saw a clear return of directional conviction—particularly against the US Dollar—although this conviction remained fragile and frequently reversed in response to political headlines.
The US Dollar’s performance was inconsistent throughout the month. Early January began with the Greenback benefiting from its traditional safe-haven role, as markets responded to geopolitical escalation involving Venezuela and renewed uncertainty around global energy supply. This USD strength placed pressure on both Sterling and the Euro, dragging GBP/USD toward key support and forcing EUR/USD lower from December highs. However, as the month progressed, the Dollar’s safe-haven advantage was repeatedly undermined by political instability within the US itself—specifically Trump’s increasingly public campaign against Federal Reserve Chair Jerome Powell and the growing narrative that Fed independence could be compromised. These concerns triggered repeated bouts of Dollar selling and created the dominant theme of the second half of the month: markets becoming increasingly “dollar-averse”.
Sterling’s January was characterised by two distinct phases. The first half of the month saw GBP/USD under pressure, with Cable sliding back toward the 1.3400 support zone and struggling to find bullish traction amid the absence of high-impact UK data. However, the second half saw a dramatic Sterling recovery—driven less by UK fundamentals and more by a broad USD sell-off—allowing GBP/USD to surge above 1.3600, reclaim 1.3700, and ultimately test levels close to 1.3900 for the first time in years.
The Euro also began the month defensively but regained momentum aggressively as USD weakness intensified. EUR/USD spent the latter part of January climbing toward levels not seen since 2021, pushing into the 1.1900s and briefly testing the psychological 1.2000 handle. However, this Euro rally created its own challenges, with speculation increasing that the ECB could be forced into policy action if a stronger Euro begins to intensify disinflationary pressures.
Against this backdrop, GBP/EUR remained largely range-bound but increasingly frustrated. While both Sterling and the Euro strengthened against the Dollar, the Euro’s outperformance meant GBP/EUR struggled repeatedly to clear resistance at 1.1550. As the month ended, the cross remained trapped in consolidation, with markets unwilling to commit to a breakout ahead of a data-heavy start to February and upcoming central bank narratives.
GBP/USD
Sterling began January on the back foot, with GBP/USD extending the downward momentum seen in late December. The pair tracked lower day by day from the Christmas period and entered the first week of the month leaning heavily on support around 1.3400, a level that had been repeatedly tested during late 2025. Early-month price action was dominated by a risk-off mood as geopolitical tensions between the US and Venezuela escalated, strengthening the Dollar via safe-haven demand and leaving Sterling vulnerable due to a lack of meaningful UK data catalysts.
GBP/USD briefly attempted to stabilise around 1.3450, but repeated sessions opened in the red, highlighting the market’s lack of confidence in holding higher levels. Sterling demand remained cautious, and with US data such as manufacturing PMIs and labour market indicators in focus, traders largely positioned defensively. The market also became increasingly sensitive to US political narratives, particularly after Trump’s press conference surrounding an oil deal with Venezuela, which contributed to risk sentiment swings and capped Sterling upside.
By mid-month, GBP/USD continued to struggle to reclaim traction above 1.3450, frequently being suppressed below its monthly moving average. A modest UK growth surprise offered temporary relief, but the pair remained exposed to US fundamentals—particularly retail data, PPI figures, and employment releases—which repeatedly restored USD support.
However, January’s turning point came as markets increasingly focused on internal US instability. Trump’s escalating campaign against Fed Chair Jerome Powell—culminating in the revelation that Powell was under criminal investigation—triggered a dramatic shift in risk sentiment. The Dollar’s safe-haven status began to invert, as traders priced political instability as a direct threat to institutional credibility. This shift drove broad USD outflows and sparked a powerful Sterling rally.
GBP/USD rebounded sharply from the 1.3400 zone and reclaimed levels above 1.3500, reaching a three-month high near 1.3568 before consolidating. The rally gained further momentum after the UK’s claimant count remained unchanged through Q4, reducing perceived pressure on the Bank of England to cut interest rates aggressively. This helped shift the interest rate narrative in Sterling’s favour, allowing GBP/USD to push toward 1.3600 and beyond.
As the final week of the month unfolded, GBP/USD broke through the major psychological barrier at 1.3700 for the third time since 2021, with traders increasingly treating this level as a potential new base for consolidation. The rally extended toward 1.3770–1.3830, with price action indicating the pair was moving into territory not seen since mid-September of the previous year. At its peak, GBP/USD attempted to push toward 1.3900, but late-month profit-taking and an overbought RSI reading began to cap upside potential.
By month-end, GBP/USD remained elevated around 1.3800, though the final sessions showed a clear slowdown as traders reduced risk exposure ahead of US PPI data, upcoming US employment figures, and Bank of England policy announcements. Despite the late-month pullback, January ended with Sterling firmly stronger than it began, with markets increasingly focused on whether the pair can establish a new support zone above 1.3700 in February.
EUR/USD
EUR/USD began January in retreat, continuing the decline that had taken hold from late December. Early in the month, the pair fell below 1.1700 for the first time since early December, with bearish traders building momentum as risk sentiment shifted toward USD strength. The initial driver was geopolitical: escalating tension surrounding Venezuela boosted demand for the Dollar, dragging EUR/USD toward key support zones.
As the first week progressed, EUR/USD slipped toward 1.1650, approaching its 200-day moving average for the first time since November. While Eurozone Sentix data was monitored for potential relief, the market remained heavily dictated by US fundamentals and risk flows rather than EU-specific drivers. In addition, Germany’s inflation reading of 0% raised concerns that the ECB may face renewed pressure to adjust policy if disinflationary forces intensify.
Mid-month, EUR/USD attempted to stabilise around 1.1630–1.1650, supported by RSI indicators suggesting limited downside room before the pair would be considered oversold. However, intermittent USD rebounds—supported by US retail data and PPI figures—kept EUR/USD suppressed and prevented a meaningful recovery.
The second half of January, however, saw EUR/USD reverse dramatically. As Trump’s attacks on Powell escalated and concerns grew over Fed independence, markets shifted sharply into USD selling. This shift was the catalyst for the Euro’s strongest rally since mid-2025, allowing EUR/USD to reclaim 1.1700, then push through 1.1750, and move into the 1.1800s.
By late January, EUR/USD surged toward 1.1850, then tested 1.1900, reaching a four-year high. The pair became increasingly stretched from a technical perspective, with RSI indicators nearing overbought territory, but the rally continued due to the strength of USD outflows rather than Euro fundamentals.
In the final sessions of the month, EUR/USD briefly pushed toward the psychological 1.2000 level and even flirted with 1.2100, marking the highest levels seen in over five years. This created a new narrative risk for the Euro: speculation emerged that the ECB could be forced to consider interest rate cuts to reduce the disinflationary impact of a stronger currency. Reports suggesting ECB concern over Euro strength began to circulate, and traders increasingly viewed the 1.2000 zone as a near-term ceiling.
By month-end, EUR/USD corrected slightly below 1.2000, holding around 1.1950–1.1985, reflecting profit-taking and caution ahead of US inflation and employment data, as well as upcoming ECB policy context. Nevertheless, January ended with the Euro dramatically stronger than it began, and the market now exits the month focused on whether EUR/USD can consolidate above 1.1900 or whether a deeper correction is due.
GBP/EUR
Despite significant volatility in GBP/USD and EUR/USD, GBP/EUR remained comparatively subdued throughout January. This was largely because both Sterling and the Euro benefited from the same dominant theme—broad USD weakness—meaning that directional bias in the cross was driven primarily by which currency outperformed against the Dollar on any given day.
Early January saw GBP/EUR attempting to break out of its late-December consolidation range. With EUR/USD falling more sharply than GBP/USD in the opening sessions, Sterling benefited from cross-market flows and GBP/EUR pushed toward 1.1500, trading around 1.1490. This marked an important near-term target, with traders hoping for a breakout channel amid the absence of UK data.
As EUR/USD regained traction mid-month, GBP/EUR lost momentum and corrected back toward the 1.1500 area. Although the pair remained above its yearly moving average at times, technical confirmation of a true uptrend failed to materialise due to the lack of alignment between key moving averages and the market’s tendency to revert back into range.
By late January, the defining feature of GBP/EUR became its repeated inability to break through resistance at 1.1550. The pair tested this level multiple times, including highs around 1.1560–1.1562, but each attempt was rejected as traders deemed Sterling overvalued against the Euro from a macro perspective. While the RSI allowed some room for upside, confidence was lacking, and Euro outperformance against the Dollar repeatedly undermined Sterling’s ability to gain ground in the cross.
Into month-end, GBP/EUR remained trapped around 1.1550, consolidating without a breakout. With February expected to bring heavy UK and US data alongside ECB policy narratives, traders refrained from placing aggressive directional bets, leaving GBP/EUR in a holding pattern despite elevated volatility elsewhere.
Outlook
January closed with FX markets positioned for an active and potentially volatile start to Q1. GBP/USD exits the month near multi-year highs after reclaiming the 1.3700–1.3800 zone, but upside is increasingly vulnerable to profit-taking and technical exhaustion. EUR/USD remains the standout performer, ending January near the 1.1950–1.2000 region after a powerful USD-driven rally, though markets now question whether Euro strength may provoke ECB concern.
GBP/EUR remains stuck at the centre of the cross-market tug-of-war, consolidating around 1.1550 as Sterling struggles to outperform the Euro on a relative basis.
With central bank announcements, US employment and inflation data, and renewed geopolitical narratives in play, February is likely to determine whether January’s moves represent a sustainable trend shift—or simply an overextended repositioning phase driven by USD instability.