– Written by


Tim Boyer

STORY LINK Euro to Dollar Forecast: Can EUR/USD Break Higher as Fed Risks Grow?

The Euro to Dollar exchange rate (EUR/USD) has eased back from recent highs, slipping toward 1.16 as investors grow more cautious on the timing and scale of Federal Reserve rate cuts.

While some banks still see scope for euro gains over the medium term, resilient US data and a firmer dollar tone have capped upside for now.

Markets are increasingly focused on Fed policy credibility and whether US rates can stay higher for longer into 2026.

EUR/USD Forecasts: Battle for Supremacy

RBC Capital Markets expects that the Euro to Dollar (EUR/USD) exchange rate will make gains in 2026, but has lowered its end-year projection to 1.20 from 1.24 with this level now seen as being reached at the end of 2024.

After little change initially, ING is continuing to back gains to 1.22 by the end of 2026 as US interest rates continue.

EUR/USD drifted lower to test the 1.1600 area during the week.

Markets are expecting two Fed rate cuts during 2026.

Credit Agricole is expecting Euro losses as the Fed resists rate cuts; “We continue to expect unchanged rates in January.

Past that, our current base case has the pause turning into an extended one that lasts through the entirety of 2026, though this is predicated upon seeing some stabilisation in the labour market in upcoming reports, where weaker-than-expected data would raise the risks of a shorter pause and/or more easing than we currently project.”

The issue of Fed independence will remain a key issue.

Early this week, the justice department issued subpoenas against the Federal Reserve and Chair Powell with claims of malpractice over Federal Reserve building renovations.

Powell pushed back strongly against the move and defended the bank strongly. MUFG commented;

“The repeated attacks on the Fed’s independence to satisfy President Trump’s desire for lower rates continues to pose downside risks for the US dollar and supports our forecast for a weaker US dollar.

It added; “However, it could backfire on President Trump if Fed officials dig in and keep rates on hold as an act of defiance to highlight the Fed’s ongoing independence in setting policy.”

RBC still expects net dollar losses against the Euro on three grounds as the cost of carry compresses between the countries, hedges on US assets will rise. It also expects a rotation into European assets and stronger Euro-Zone growth.

RBC is still cautious over the scope for substantial gains;

“We are aware of the headwinds to long-term EUR/USD strength – US productivity growth outperforms Europe’s, there is no good European alternative to USTs, the US dominates Europe in AI and tech and the EU also still has an undercurrent of political risk.”

ING also sees near-term potential barriers to Euro support;

“With volatility low, and high-yield and emerging market currencies in demand, it seems investors are preferring to fund carry trades out of the euro at a cost of just 2.00% rather than dollars at around 3.55%.”

Deutsche Bank expects Asian currency developments will be a key element;

“Comparing medium-term FX valuation estimates to mid-dated forwards shows that EUR/USD is now very close to fair value, even if the dollar is still expensive. It will be very hard for EUR/USD to break 1.20 in the absence of greater idiosyncratic strength in Asia FX.

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Reuters Poll Points to a July Rate Hike

According to January’s Reuters poll, conducted between January 6-13, 43% of economists predicted a July BoJ rate hike, 27% a June hike, and just 8% an April hike. Economists expect the BoJ to delay raising interest rates to assess the impact of December’s rate hike on the economy.

However, the weaker yen has pushed import prices higher, reducing households’ purchasing power. A more hawkish BoJ policy stance, including hints at cutting JGB purchases, would likely offer much-needed relief. Private consumption is a key contributor to Japan’s economy, accounting for roughly 60% of GDP.

The BoJ monetary policy decision is set for January 23. 65 of 67 economists polled expected the BoJ to keep rates steady in January and March. The slump in machinery orders supported the economists’ outlook. But, political developments and fiscal spending plans are likely to change the narrative, suggesting a USD/JPY pullback from current levels. Sentiment toward the BoJ’s rate path through H1 2026 will be key, given that most economists expect a rate hike in July.

The political uncertainty and fiscal concerns support a cautiously bullish short-term price outlook for USD/JPY. Meanwhile, warnings of yen interventions and expectations of Bank of Japan rate hikes reinforce the bearish medium-term projection. Hawkish BoJ rhetoric and intervention warnings would likely challenge the cautiously bullish short-term outlook.

China Adds Policy Uncertainty to the Policy and Economic Outlooks

Rising Japan-China tensions have added another layer of policy uncertainty into the mix. US tariffs and friction with China have led economists to predict slower growth and softer inflation in 2026.

Natixis Asia Pacific Chief Economist Alicia Garcia Herrero commented:

“All in all, Japan’s GDP is expected to slow to +0.9% in 2026 from +1.3% in 2025, dragged by higher US tariffs and tensions with China. […] With the Yen remaining relatively weak, inflation is expected to slow down only to +2.3% YoY in 2026 from +3.1% YoY in 2025.”

On the BoJ’s monetary policy stance, Alicia Garcia Herrero stated:

“With PM Takaichi’s strong preference for a lax monetary policy to realize her vision, the BoJ is likely to remain cautious in normalizing further. In fact, uncertainties are compounded by the political tension with China, raising the bar to hike. Nevertheless, the ongoing tug of war over policy normalization with the government is anticipated to keep the Yen stubbornly weak. These developments are expected to force the BoJ to hike by 25 bps, possibly in July, to stabilize the currency.”

The prospect of BoJ rate hikes and Fed rate cuts reinforces the bearish medium- to longer-term price trajectory.

US Trade Policy in Focus ahead of Key Economic Data

This week, investors should closely monitor developments on tariffs. A US Supreme Court ruling on the legality of the US administration’s tariff policies is imminent.

A court ruling that blocks tariffs would likely boost risk sentiment, easing demand for the US dollar. Furthermore, the removal of tariffs would improve global trade, benefiting Japanese exporters. These dynamics would likely overshadow the downward effect of removing tariffs on Japanese import prices and the yen, indicating a bearish USD/JPY outlook.

On Monday, US markets are closed for Martin Luther King Jr. Day, with the Fed in its Blackout Period, leaving the USD/JPY exposed to geopolitical risks. President Trump announced tariffs on eight European countries on Saturday, January 17, in a bid to acquire Greenland, potentially escalating trade tensions. The eight countries included Denmark, Norway, Sweden, France, Germany, the UK, the Netherlands, and Finland.

Despite rising geopolitical tensions, expectations of multiple BoJ rate hikes and a new Fed Chair favoring lower interest rates suggest narrower US-Japan rate differentials. These factors reaffirm the bearish medium-term outlook for USD/JPY.

Technical Outlook: Key Levels to Watch

For USD/JPY price trends, traders should assess technicals and closely track the fundamentals.

Viewing the daily chart, USD/JPY remains above its 50-day and 200-day Exponential Moving Averages (EMAs), signaling bullish momentum. While technicals remain bullish, bearish fundamentals are developing, countering the technicals.

A break below 157 would expose the 50-day EMA and the 155 support level. A sustained fall through the 50-day EMA would indicate a bearish near-term trend reversal, bringing the 200-day EMA into play. If breached, 150 would be the next key support level.

Crucially, a sustained fall through the 50-day and 200-day EMAs would reaffirm the bearish medium-term price outlook.

Created on January 18, 2026

Traders of the GBP/USD will have to decide on their personal perspectives while judging technical, fundamental and behavioral sentiment this coming week.

The highs seen on the 6th of January touched values last seen in September of 2025, but remained far below the apex highs attained then and in the month of June when the 1.37000 value was penetrated. However, the recent lower price action in the GBP/USD is still within the lower middle crux of the currency pair’s value via a one month chart. And near higher elements when a GBP/USD three month technical glance is taken.

The U.K still is producing rather lackluster economic data, this Tuesday employment data will come from Britain, and inflation via CPI statistics will be published on Wednesday. Yet, U.S data and influence via USD centric action remains the dominant force with the GBP. U.S economic data via its inflation statistics were rather mixed, but the most recent releases (October and November data were released last week at the same time due to the U.S government shutdown a couple of months ago) showed inflation remained rather tame – this if you looked at the November results.

However, this point can be argued and certainly did not impact the USD with weakness. In fact the USD got stronger and the downwards price of action of the GBP/USD and the EUR/USD reflected this trend. It can be said that more risk adverse attitudes in the financial markets caused the selloff of the GBP/USD, which picked up moment from late Tuesday and into the remainder of the week. The close of nearly 1.33764 is traversing territory last seen around the 19th of December.

The U.S Federal Reserve is suffering from a rather public debate in its FOMC about the direction of interest rates. Fed Chairman Jerome Powell and President Trump are engaged in a rather unprecedented tussle regarding policy.

• The firefight President Trump is trying to start with the Fed may have financial institutions rather nervous about short and near-term effects on the USD.
• The Fed will conduct its next FOMC meeting the end of January, and not many analysts are predicting a rate cut in this upcoming meeting.
• Also the threat of escalating tension in the Middle East due to the Iranian situation has likely increased nervousness with financial institutions, this as they look forward and deal with near-term commercial cash positions.

Day traders and financial institutions may both feel that the GBP/USD is oversold at its current levels, but nervous sentiment early this coming week should be watched. Depending on news developments the USD could see rather volatile price action due to rhetoric which could influence sentiment rather dramatically in the near-term. If global conditions remain tranquil this could help ease tensions among large institutions, but this doesn’t feel likely. This weekend has produced loud noise regarding threats of more tariffs against Europe due to political diatribes from President Trump about Greenland once again, yes, believe it or not. Thus, large traders are getting hit from many directions regarding noise in the markets.

Also it should be remembered that President Trump is scheduled to speak in the middle of this week at the Davos summit in Switzerland. Trump could engage in a calm tranquil policy speech, or he could easily veer off into rhetoric which makes financial markets nervous. If nervousness wins the day, this could create downwards trajectory for the GBP/USD. Although the GBP/USD may be thought of as being oversold for the moment, looking for sustained upside this coming week may be difficult. Short, quick hitting wagers are recommended for day traders depending on the their perspectives and sentiment shifts which are a certainty.

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• The GBP/USD weekly forecast edges down, as the pair closed the week below 1.3400 amid upbeat US data and risk-off sentiment.
• Markets await key data from both sides to gauge a fresh directional move.
• Technically, the price is leaning to the downside, eyeing 1.3200 if downside pressure sustains.

GBP/USD closed last week on the defensive below 1.3400, paring weekly gains despite a mildly positive data surprise from the UK. The release of UK GDP m/m showed modest growth, but the data failed to trigger sustained buying interest in sterling.

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Markets mainly interpreted the improvement as technical rather than structural, which aligns with the assumption that UK growth is sluggish when money is tight. GBP bulls were uncertain; therefore, the rising momentum faded.

The dollar has better fundamentals in the US. Producer Price Index, Retail Sales, and Initial Jobless Claims all exceeded expectations, indicating a healthy US economy. These disclosures lowered expectations that the Fed would cut rates soon, raising Treasury yields and strengthening the dollar.

A defensive bid for the dollar followed increased geopolitical concerns over Iran, which made people less risk-taking. This accelerated GBP/USD’s decline at week’s end.

GBP/USD Key Events Next Week

The next week will be full of important UK data releases that could set the pound’s course in the near future. The Claimant Count numbers will give us an idea of how the job market is doing, and the Retail Sales and CPI numbers will be crucial for setting expectations for Bank of England rates. Markets will pay close attention to inflation data, especially for signs that prices are easing. Flash PMIs will give us a timely snapshot of business activity in key sectors later this week.

On the US side, investors are now looking at GDP, Core PCE, and Flash PMIs. The Fed still likes Core PCE as an inflation measure, and an unexpected rise could support the view that prices will remain high for a long time. GDP data will help us determine whether the recent strength is widespread or is slowing.

In general, GBP/USD is sliding lower unless UK data clearly beats expectations and US inflation signals weaken. The dollar is still in charge for now, especially given the world’s greater uncertainty.

GBP/USD Weekly Technical Forecast: Make or Break at 100-MA

GBP/USD is consolidating after a rejection from the 1.3550-1.3600 resistance zone, suggesting bullish momentum is fading. The price is below both the 20- and 50-day MA, which are flattening. This supports a neutral to mildly bearish bias. RSI is moving toward the middle line, indicating the market is consolidating rather than continuing its trend.

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The 100-day MA near 1.3360 is a key support level. If the market closes below this level every day, it will open up to 1.3250-1.3200. On the upside, 1.3450-1.3500 is immediate resistance, followed by 1.3600. If the price breaks through this level, it will gain momentum toward 1.3750.

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Copper price provided a new negative close below the barrier at$5.9700, announcing to delay the bullish attack, to begin activating the bearish corrective trend by reaching $5.7900 initially, approaching the initial suggested target in the previous report.

Stochastic exit from the overbought level will increase the negative pressure on the price, which makes us keep the bearish corrective suggestion, to expect targeting $5.6000 level, to press on the extra support at $5.5100.

The expected trading range for today is between $5.6000 and$5.8600

Trend forecast: Bearish correctly

The Pound Sterling (GBP) started off the week on a firm footing against the US Dollar (USD) and jumped to 1.3486 on Monday, following criminal charges against Federal Reserve’s (Fed) Chair Jerome Powell over cost overrun in the reconstruction of Washington’s headquarters.

However, the GBP/USD pair turned down steadily as the week passed after Bank of England (BoE) policymaker Alan Taylor delivered dovish comments on the monetary policy outlook, and investors shifted their focus to the Fed’s monetary policy decision scheduled later this month.

Pound Sterling turned upside down

The Pound Sterling gained sharply against the US Dollar on Monday after United States (US) federal prosecutors opened a criminal investigation into Fed Chair Powell over mismanaging funds in the reconstruction of Washington’s headquarters.

In response, Powell said that the “new threat is not about the renovation project but a pretext”. He also added that the threat of criminal charges is a “consequence of the Fed setting interest rates based on its assessment of the public interest rather than the president’s preferences”.

Market experts viewed the accusation of cost overruns against Powell as an attack on the central bank’s independence, which could undermine US assets and impact the US sovereign rating in the long run.

It remained clear from US President Donald Trump’s comments over the past several months that he was unhappy with the Fed not reducing interest rates aggressively, criticizing Chairman Powell several times for the same.

On Tuesday, US President Trump criticized Fed’s Powell again after the release of the Consumer Price Index (CPI) data for December, which showed price pressures rising steadily, demonstrating his dislike for him for not prioritizing his economic agenda. “We have very low inflation. That would give ’too late Powell’ the chance to give us a nice beautiful big rate cut,” Trump said.

Chiefs from global central banks came in support of Powell, stating that “Independence of central banks is a cornerstone of price, financial and economic stability in the interest of the citizens that we serve”, and “we stand in full solidarity with the Fed System and its Chair Jerome H. Powell.”

However, the steady US CPI report on Tuesday provided relief for the US Dollar against the British currency, as it intensified speculation that the Fed will announce a pause in its ongoing monetary-easing campaign at its policy meeting later this month.

On Wednesday, dovish commentary from BoE’s Taylor on the monetary policy outlook dragged the Pound Sterling further against the US Dollar.

Taylor said in a speech on Wednesday that inflation could return to the central bank’s 2% target in mid-2026 more quickly than having to wait until 2027, and projected that interest rates could “normalise to neutral sooner rather than later”. In the December policy meeting, the BoE guided that the monetary policy will remain on a “gradual downward path”.

The impact of expectations for the Fed holding interest rates steady and BoE Taylor’s dovish commentary was significant for GBP/USD, restraining the pair from regaining ground despite strong United Kingdom (UK) monthly Gross Domestic Product (GDP) data for November on Thursday.

The Office for National Statistics (ONS) reported that the economy returned to growth after contracting 0.1% in both September and October. The GDP growth came in at 0.3%, stronger than estimates of 0.1%. Month-on-month (MoM) Industrial and Manufacturing Production also grew at a robust pace of 1.1% and 2.1%, respectively.

GBP/USD revisited a four-week low around 1.3360 on late Thursday as the US Dollar Index (DXY) posted a fresh six-week high at 99.50, following a few Fed officials. Kansas Fed Bank President Jeffrey Schmid and Atlanta Fed Bank President Raphael Bostic came out in support for modestly restrictive monetary policy stance, citing upside inflation risks. “We need to stay restrictive because inflation is too high,” Bostic said, adding, “I expect inflation pressures will continue through 2026 as many businesses are still incorporating tariffs into prices.”

UK employment and inflation data to drive GBP next week

The major events for the Pound Sterling in January’s third week will be the release of UK employment data for the three months ending in November and the Consumer Price Index (CPI) data for December, which will be released on Tuesday and Wednesday, respectively.

Investors will pay close attention to both data for fresh cues on the BoE’s likely interest rate decision at its first monetary policy meeting of 2026 on February 5.

The UK ILO Unemployment Rate jumped to 5.1% in the three months ending October, the highest level seen since March 2021. Meanwhile, inflationary pressures cooled down for the second straight month in November after peaking in September.

Next week, investors will also focus on the UK Retail Sales data for December, and on the preliminary S&P Global Purchasing Managers’ Index (PMI) data for January for both the UK and the US.

During the week, US President Donald Trump could also reveal the name of the next Fed Chairman. In December, Trump said that he could announce Powell’s successor at the Fed sometime in January. The comments from Trump in his latest interviews indicated that White House Economic Adviser Kevin Hassett, former Fed Chair Kevin Warsh, and current Fed Governors Christopher Waller and Michelle Bowman are major contenders to replace Jerome Powell.

GBP/USD Technical Analysis

In the daily chart, GBP/USD trades at 1.3404. The 21-day Simple Moving Average (SMA) rises above the longer ones, while the 50- and 200-day SMAs advance and the 100-day SMA flattens. Price holds above the 50- and 100-day averages but sits beneath the 21-day, with the 200-day SMA at 1.3406 acting as immediate resistance and the 100-day at 1.3365 supporting. The Relative Strength Index (RSI) at 48 (neutral) edges higher but remains below the midline, indicating subdued momentum.

A break above the 200-day SMA at 1.3406 could open a path toward the rising 21-day SMA at 1.3460, while a pullback would shift focus to the 100-day SMA at 1.3365 and then the 50-day at 1.3335. The upward slope of the 200-day SMA underpins the medium-term bias, but traction would improve if the RSI reclaims 50. A sustained move through nearby resistance would favor an extension toward the short-term average, whereas failure to gain above the long-term gauge would keep the pair contained within the moving-average cluster.

(The technical analysis of this story was written with the help of an AI tool.)

• The USD/JPY price analysis remains choppy despite a risk-off move in equities.
• Reduced odds of early Fed rate cuts amid upbeat US data keep the greenback supported.
• Japan’s political concerns weigh on the yen, but FX intervention warnings limit the downside.

The USD/JPY price is holding in a tight 158.40–158.60 range, shrugging off a modest risk-off move in US equities. Tech led the pullback, with the Nasdaq 100 down about 1.0%, while the S&P 500 and Dow slipped less. Despite softer risk sentiment, the dollar side of the pair remains well-supported, with the Dollar Index near 99.3, close to monthly highs.

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The macro backdrop in the US still points to a firm dollar and an uptrend in USD/JPY. November retail sales rebounded about 0.6% MoM after a small October decline, and producer prices went near 3.0% YoY on both headline and core measures.

The unemployment rate around 4.4% does not point to a sharp labor-market downturn. This combination of strong demand, rising upstream prices, and stable jobs has pushed back expectations of the first Fed cut to June.

In the near term, rates are expected to stay in the 3.50–3.75% range. There is no longer a strong expectation of aggressive early easing in markets, which supports yields and keeps USD/JPY dips toward 155.00 well bid.

On the Japanese side, politics and FX intervention are more important to the story than domestic yields. Officials have been warning more and more against “one-way excessive moves.” Chief Cabinet Secretary Seiji Kihara has even said that intervention could occur if the yen weakens too quickly.

That has helped JPY outperform some high-beta currencies on days when risk is low. But the “Takaichi trade” goes the other way; hopes for an early snap election, a win for Sanae Takaichi, and a budget with excessive spending support Japanese stocks more than the currency, leaving no clear way for the BoJ.

USD/JPY Technical Price Analysis: Consolidation Below 20-MA

The 4-hour chart for USD/JPY shows selling pressure, as the price is below the 20-period MA. However, the pair has formed a bullish doji candlestick pattern, revealing sustained buying on the dips. Meanwhile, the pair continues to consolidate after falling from the 159.45 peak.

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The RSI remains flat near 50.0, suggesting no clear momentum, while the MAs still point to more gains. The pair is expected to oscillate between 157.50 and 159.50. A clear breakout in either direction could trigger a meaningful trending move.

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