The New Year has begun with a bang following the shock ousting and capture of Venezuela President Nicolás Maduro by US forces over the weekend, but the early reaction in currency and futures markets has been calm.
The major currencies are trading largely unchanged from their Friday close, barring a modest rally in the safe-haven dollar and Swiss franc, as is customary during risk off periods. Oil prices have actually fallen modestly in anticipation of Venezuelan supply returning to the market. While the reaction in Latin American currencies may be more volatile in the days to come, Venezuela's isolation from the world economy under the Chavista regime has limited the fallout. For now, currencies and financial markets generally continue to focus on monetary policy, inflation and growth data.
While much remains unclear about how the transition away from Chavismo will proceed, we think that the market impact of any Venezuelan headlines will remain limited. This week's focus will be on the Eurozone inflation print for December on Wednesday, followed by the December US payrolls report on Friday. The latter will be key, as many questions were raised about the quality of the previous report due to the federal shutdown. Beyond macro reports long-term sovereign yields will be in focus, which appear to have started the year on the backfoot already and could become the story for 2026.
GBP
Sterling was little changed against its peers over the Christmas holidays, as few notable data was released and no major monetary policy decisions or speeches occurred. Markets are pricing in little more than one additional cut by the Bank of England in 2026. This means that the pound should retain substantial support from a wide interest rate differential over the euro, at least until the European Central Bank starts looking at hiking rates, which admittedly could happen prior to the MPC.
We remain cautious on sterling this year, however, given the amalgam of downside risks to the economic outlook, and we foresee a continuation of only modest economic growth that we saw in 2025. This should be enough for sterling to keep up with the euro as European currencies generally continue to drift higher against the US dollar.
EUR
The economic and policy calendar over the holidays was even thinner in the Eurozone, and the currency also moved very little. The biggest shifts were seen during Asian trading on Monday, as investors reacted to the weekend’s news by bidding up the safe-haven dollar against most currencies. While we would expect EUR/USD to come off further should geopolitical jitters intensify further in the coming days, it looks as though the situation is largely contained for now.
The lull will be broken this week with the publication of the flash inflation report for December. However, consensus expects little change from the last few reports, which showed inflation only slightly above the target. Expectations for 2026 growth have been generally revised up. The rate cutting cycle is certainly over, and the ECB may start thinking about hiking rates before the end of 2026, which should lead to the common currency's gradual appreciation.
USD
Economic data over the holidays did not significantly change the picture of a low-hire, low-fire labour market and steady economic growth. A slate of jobs data is due this week, culminating in the December payrolls report on Friday. Economists' predictions for this critical number are unusually widely distributed, but the median is around 60k net jobs created. This is a rather mediocre level, but combined with the absence of significant job destruction, it should be enough for the Fed to refrain from cutting rates at its meeting later this month.
Uncertainty surrounding the composition of the Federal Open Market Committee will be key for markets. Trump has already stated that he intends to announce his pick for new chair later this month, and it now seems to be a near dead heat between the two Kevins: Hassett and Warsh. In any case, whoever is appointed will no doubt share Trump’s enthusiasm for lowering interest rates.
Deep dives and expert insights:
- G10 currency market report - Get the latest analysis on major currencies.
- G10 FX Outlook - December 2025
