Weekly FX Outlook | Consolidation Phase Develops

FX markets have shifted into a consolidation phase following the volatility and directional repricing that defined January. Sterling has begun to absorb domestic political and monetary pressures, and price action across the G10 complex is now trading in tighter, more reactive ranges. 

This transition marks a change in market character rather than a change in macro direction. Momentum has slowed, but volatility beneath the surface remains elevated. Instead of broad USD weakness driving one-way moves, currencies are now responding more selectively to central-bank signalling, political developments and positioning adjustments. 

In short, the trend has paused, but the underlying drivers have not disappeared. 
 

The US dollar has stabilised following January’s sharp repricing, but the move lacks the depth and breadth typically associated with a structural reversal. Support has emerged tactically rather than fundamentally. 

Policy credibility steadied after the nomination of Kevin Warsh as prospective Federal Reserve Chair, while US officials signalled discomfort with the pace of dollar weakness. At the same time, stretched speculative short positioning began to unwind, precious metals corrected from highs, and a modest risk-off tone in equities offered additional near-term support. 

Yet the recovery has been uneven. 

GBP/USD entered a corrective phase as sterling-specific pressures intensified, but EUR/USD has remained elevated. That divergence reinforces that dollar strength is selective rather than systemic. Broader dollar index momentum remains fragile, and capital flow dynamics continue to favour gradual diversification away from USD exposure. 

Markets are still pricing further Federal Reserve easing over time. Until rate differentials re-expand meaningfully or US growth reasserts exceptionalism, rallies in the dollar are likely to remain corrective rather than trend-forming. 

For USD buyers, periods of stabilisation continue to present tactical opportunities rather than signals of sustained dollar recovery. 
 

Sterling’s recent performance continues to highlight a key structural distinction. Pound strength through late January was driven primarily by external forces rather than domestic outperformance. 

USD weakness, global equity inflows, improving risk sentiment and relative yield positioning all supported GBP crosses. However, domestic fundamentals are now exerting greater influence on price action. 

The Bank of England’s latest policy decision laid the groundwork for future easing. Rates were held at 3.75 percent, but the narrow 5-4 vote split revealed a growing dovish bias within the Monetary Policy Committee. Four members voted for an immediate cut, signalling momentum building toward policy loosening. 

Markets are now pricing two rate cuts across the year, with the easing cycle potentially beginning within the coming meetings if labour-market softening and disinflation trends persist. 

Recent UK data has reinforced that view. Employment has weakened, wage growth has cooled and GDP figures continue to reflect a fragile growth environment. While activity surveys show pockets of resilience, the broader economic pattern remains one of stagnation rather than acceleration. 

Overlaying the policy backdrop is a re-emerging political risk premium. 

Leadership scrutiny, cabinet instability and fiscal direction debates have begun feeding into sterling pricing. This has been most visible in GBP/EUR, widely viewed as the cleanest expression of UK-specific risk within G10 FX. 

Sterling remains globally supported, but domestically exposed. 
 

GBP/USD’s rally toward the high-1.30s in January was driven primarily by dollar repricing rather than a material improvement in UK fundamentals. The subsequent pullback reflects the convergence of several corrective forces. 

Dollar stabilisation, dovish Bank of England repricing, political uncertainty and an unwind of overbought positioning have all contributed to the pair’s consolidation. 

Technically, the structure resembles a pause within an established uptrend rather than a full reversal. Support continues to hold on dips, while rallies are meeting lighter but visible resistance as markets reassess rate differentials. 

Direction from here remains USD-led. Upcoming US inflation prints, labour-market data and Federal Reserve communication will likely dictate whether consolidation resolves into renewed upside or deeper retracement. 

For now, the pair is range-bound but structurally supported. 
 

EUR/USD continues to hold firm despite the recent stabilisation in the dollar. The pair’s resilience reinforces the view that underlying USD softness remains intact. 

Support has formed within a tight technical band, cushioning downside moves and allowing momentum to reset without damaging the broader bullish structure. The euro is benefitting from relative policy predictability, narrower rate differentials and structural capital flows rotating out of dollar concentration. 

Equity-market developments are also feeding into the macro narrative. Concerns around US technology valuations and narrowing earnings leadership have prompted questions around the durability of US exceptionalism, a theme that has historically weighed on the dollar’s safe-haven premium. 

While seasonal patterns warn that February can favour the dollar tactically, the medium-term bias continues to point toward gradual USD depreciation rather than sustained recovery. 

So long as key support zones hold, EUR/USD remains positioned for consolidation within an upward structure rather than reversal. 
 

GBP/EUR remains one of the clearest expressions of sterling-specific risk in the current environment. 

The pair has repeatedly failed to sustain moves above the mid-1.15 to 1.16 resistance zone, confirming selling interest on rallies. At the same time, downside moves have been contained by technical support, reinforcing a broader sideways structure. 

Political developments in the UK have injected additional sensitivity into the cross. Fiscal credibility concerns and leadership speculation have weighed on sterling relative to the euro, while limited policy divergence between the Bank of England and the European Central Bank has kept the pair anchored. 

This remains a tactical execution market rather than a directional trend environment. 

For euro sellers, current levels remain relatively favourable within the established range, particularly with sterling facing domestic headwinds into future policy decisions.
 

Across the wider G10 complex, consolidation has become the dominant theme. 

Commodity currencies such as AUD and NZD continue to find structural support from yield demand and regional growth linkages, though momentum has slowed. CAD remains range-bound alongside oil stability, while JPY volatility persists amid intervention sensitivity and yield-curve dynamics. 

Safe-haven flows into CHF remain steady but secondary to euro dynamics, while Scandinavian currencies continue tracking global growth sentiment. 

The key takeaway is not directional clarity, but reactive volatility. Markets are moving faster intraday while travelling less distance structurally. 
 

Compared with prior weeks, the near-term economic calendar is lighter on high-impact releases. Markets are digesting previous central-bank signals, particularly the Bank of England’s dovish shift, rather than reacting to fresh macro shocks. 

Upcoming inflation prints, PMI surveys and Federal Reserve commentary will still shape sentiment, but the absence of clustered “red-tier” releases has contributed to the current cooling in price action. 

This calm should be viewed as temporary. 

As we move toward the next batch of labour-market and inflation data, volatility risks are likely to rebuild, particularly if policy expectations are challenged. 
 

Markets have transitioned from repricing to digestion. 

January delivered the directional move in the dollar. February is testing whether that repricing holds. The result so far is consolidation rather than reversal. 

USD stabilisation remains tactical. EUR resilience remains structural. Sterling sits between the two, supported externally but pressured domestically. 

This is an environment where timing matters more than conviction. 
 

The US dollar has stabilised but not recovered structurally. EUR/USD remains elevated, reinforcing ongoing diversification flows. GBP is increasingly sensitive to domestic political and policy risks, keeping GBP/EUR range-bound and GBP/USD corrective rather than bearish. 

With volatility likely to re-accelerate as fresh economic data emerges, this remains a market that rewards structure, planning and active risk management rather than passive execution.