Central banks in focus this week
The euro and sterling lost further ground against the dollar on Friday, closing at lows for the week of circa $1.1415 and $1.3230 respectively, the latter also a new low for 2026 to date. They are both marginally firmer this morning though despite a further rise in oil prices, Brent crude now at $106 p/b after the US launched strikes on military targets on Kharg Island, Iran’s key oil exporting hub, over the weekend. EURGBP is largely unchanged at the start of play today, having closed slightly lower on the week on Friday at about £0.8630. Looking to this week, the ECB, Bank of England (BoE) and Fed all hold monetary policy meetings, the first opportunity to provide a formal response to developments in energy markets. While the three are expected to keep interest rates on hold, they are also likely to say they are prepared to act to ensure higher energy prices do not lead to persistently higher inflation.
US government bonds were mixed on Friday, reflecting a mixed bag of (US) economic data, with 2-year yields declining by around 3bps but 10-and 30-year yields ending marginally higher on the day, though over the week yields rose by around 15bps across the curve. UK and German yields both edged higher again on Friday and increased by 18-26bps and 11-13bps respectively on the week. Yields generally are slightly lower this morning notwithstanding the further increase in oil prices. In equity markets, US and European stocks ended the week on a soft note leaving them down around 1.5% and 0.5% respectively from the previous Friday’s close.
Regarding Friday’s economic data in the US, headline PCE inflation – the Fed’s target measure of inflation – came in a bit lower than expected at 2.8% in January, down from 2.9% in December, while core inflation, which excludes energy and food prices, was in line with expectations at 3.1% albeit up from 3% the previous month. Within core, goods inflation nudged down to 1.9% (from 2%) but this was offset by an increase in services inflation to 3.4% (from 3.3%). Meanwhile, GDP growth in Q4 2025 was revised down to 0.2% q-o-q from 0.4% in the first estimate, partly due to a downward revision to the growth in consumer spending. Over the year to Q4 the economy grew by 2%, a mild deceleration from 2.4% over the year to Q4 2024.
For the week ahead, as mentioned, there’ll be much focus on the main central banks with the Fed meeting on Tuesday-Wednesday and the ECB and Bank of England on Thursday. It is fairly quiet in terms of economic data. The main releases include the latest labour market report in the UK on Thursday and industrial production and producer prices in the US today and Wednesday respectively.