Economics and central banks are the big story this week, with interest rate decisions on both sides of the Channel. However, for at least the third Monday morning of 2026 political news from the US is muddying the waters – this time in the shape of a partial US government shutdown driven by a row over immigration enforcement (ICE) funding.
The past month has seen GBP/EUR butting its head against the same level. While it remains at close to a six-month high there has never quite been enough momentum to break above it.
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No such worries against the US dollar, where sterling, like most other currencies, has been going from strength to strength – albeit it with some of the froth taken off it in the latter part of last week.
So, this is an interest rate week for the Bank of England. The markets are looking for any hint of how the Monetary Policy Committee (MPC) sees pay growth, inflation and the timing of future moves.
One report they will be looking at is the one this morning from Incomes Data Research, which found that 44% of bosses expect to be paying pay rises of around 3% this year. Of the rest, half would pay more and half pay less. This would be a sharp drop from the current 4.5%.
The European Central Bank (ECB) also has a rate decision on Thursday. Friday saw a mass of data from the eurozone, most of it positive. That included GDP in the bloc better than expected at 1.3% year on year and unemployment at a record low in recent history. Is all that at the expense of inflation? German and Spanish inflation did rise above the target 2%, it’s true, and we’ll get more on that this week from the rest of eurozone. No-one expects an interest rate increase – but what will the ECB signal?
For the dollar, this week is all about the labour market, with the JOLTS jobs report tomorrow and non-farm payrolls on Friday. We also have a likely replacement for the Fed’s Jerome Powell in the shape of Kevin Warsh, whose appointment is already said to be the cause of gold prices plunging.
So what we’re watching out for is market reaction to a US shutdown and Warsh appointment, plus Thursday’s Bank of England and ECB reports and the next run of inflation and labour-market signals on both sides of the Atlantic.
