Dollar Strength Builds as Commodities Fall

Key Highlight

• Precious metals come under selling pressure
• Kevin Warsh named as Trump’s choice to lead the Fed

Market Recap

The US dollar strengthened into Friday’s close, supported by a broad pullback in precious metals, with gold and silver leading the decline. Earlier momentum for the greenback was driven by firmer US producer price data and news that Donald Trump has nominated Kevin Warsh as his choice for Federal Reserve Chair, a move markets interpret as leaning towards a more hawkish policy stance.

In FX markets, USD/JPY climbed around 1% after Japanese officials confirmed there was no currency intervention during January, alongside easing inflation pressures in Tokyo. The euro edged lower on the session despite positive euro-area growth data, while the Canadian dollar lagged after flat GDP figures heightened concerns over Canada’s growth outlook.

Market Overview:

This week’s focus is firmly on US labour market data, although significant seasonal and survey adjustments are expected to make January’s employment figures harder to read. Alongside US jobs, investors will be watching US manufacturing indicators and Canadian employment numbers. In contrast, Europe faces a quieter policy calendar, with both the ECB and Bank of England widely expected to leave interest rates unchanged. Euro-area inflation is forecast to drift further below target, reinforcing a generally dovish tone across the region.

USD – Labour data in focus, but clarity limited

US labour market conditions remain soft enough to ease inflationary pressure concerns. Job openings are expected to show a modest recovery in December, following the previous month’s drop, though broader hiring trends remain inconsistent. January’s payroll data is likely to be distorted by methodological changes, with employment growth expected to slow and the unemployment rate holding steady. Manufacturing data may show a slight improvement but should continue to signal contraction, with easing price pressures and uneven employment trends supporting a more cautious USD outlook.

What this means: Near-term USD moves may be choppy, with markets cautious about drawing firm conclusions from headline data.

CAD – Employment momentum under pressure

Canada’s latest jobs figures are expected to point to only limited employment growth. Softer labour market conditions, weaker business confidence, and increasing uncertainty around US–Canada trade relations continue to weigh on the outlook.

What this means: A subdued data backdrop leaves the Canadian dollar vulnerable to underperformance against stronger peers.

EUR – Inflation below target reinforces dovish bias

Euro-area inflation is expected to move further below the ECB’s 2% target in January, largely due to energy-related base effects. While underlying inflation is likely to remain sticky, the overall trend supports expectations for steady policy. The ECB is expected to keep rates on hold, though markets will be attentive to any commentary around recent EUR/USD levels following last week’s remarks.

What this means: Limited upside for the euro in the near term, particularly against higher-yielding currencies.

GBP – Rate hold expected amid mixed signals

The Bank of England is widely expected to maintain current rates, with another split decision among policymakers. Updated projections are likely to show inflation moving closer to target by mid-2026, aided by government measures. However, a cooling labour market and lingering uncertainty over inflation persistence suggest policymakers will remain cautious. The central case remains for the next rate cut in June, with a chance of a further move later in the year.

What this means: Sterling may remain range-bound, with rate-cut timing continuing to drive near-term direction.

2nd February 2026

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