Weekly FX Outlook: USD Weakness Pauses as GBP and EUR Enter Consolidation Phase
Lamera Capital
2026-02-02
This weekly FX outlook focuses on recent US dollar weakness across G10, how sterling and the euro have responded, and how central bank policy and data will shape currency markets in the week ahead.
January delivered a sharp repricing of the US dollar. That move was driven less by deteriorating US data and more by political uncertainty, concerns around Federal Reserve credibility, and a gradual shift in global behaviour toward USD exposure. As February begins, that repricing has slowed. Markets are no longer extending trends aggressively, but are instead consolidating and looking for confirmation.
The shift is important. FX has moved from trend to test.
GBP/USD - Uptrend Intact, Correction Phase Active
Sterling remains well supported against the dollar, but GBP/USD has entered a corrective phase after an aggressive January rally. The pair pushed to multi-year highs in the 1.38 level before pulling back toward the mid-1.36s.
This pullback reflects a necessary reset rather than a reversal. The USD sell-off ran too far, too fast, leaving the pair overbought. More recently, confidence in the Federal Reserve has stabilised modestly, helping the dollar recover some ground.
Crucially, the broader GBP/USD uptrend remains USD-driven rather than UK-led. UK fundamentals have not materially improved, but they have also not deteriorated. Direction from here will depend primarily on US data and Fed signalling rather than domestic UK developments.
This week’s focus:
US labour data, including ADP, payrolls and wage growth, will decide whether the dollar stabilises further or resumes weakening.
- Weak data keeps pressure on the dollar and supports GBP/USD
- Strong data risks a short-term USD bounce and caps upside
GBP/USD is now a two-way market. This is consolidation, not capitulation.
GBP/EUR - Strong but Capped
The pair continues to frustrate both sides of the market. Sterling remains supported, but repeated failures near long-term resistance around the 200-day moving average confirm heavy selling interest above 1.1550.
This behaviour is consistent with previous episodes this year, where failed breakouts led to sideways consolidation rather than follow-through.
Both central banks meet this week:
- The Bank of England is expected to hold rates, broadly validating expectations for a first cut in April
- The ECB is also expected to remain on hold, with no meaningful policy shift anticipated in 2026
With no clear policy divergence and no domestic catalyst, GBP/EUR remains a range market, not a trend market.
Sterling strength versus the euro is real, but exhausted. Tactical execution matters more than direction.
EUR/USD - Correction Inside a Constructive Trend
EUR/USD has pulled back from four-year highs after becoming technically overextended. That correction fits with a stabilising dollar and a reset in positioning rather than a rejection of the broader move.
The euro remains supported by relative stability. ECB policy is predictable and neutral, which limits downside risk while the policy gap with the US continues to narrow. Support in the 1.1750 - 1.18 area looks credible.
As with GBP/USD, the next move will be dictated more by US data than by ECB rhetoric.
If USD weakness resumes, EUR/USD is better positioned than GBP/USD to benefit.
G10 Snapshot – Key Themes
- USD: Weakness has paused, not reversed. Structural confidence issues remain, but near-term positioning has reset.
- GBP: Supported by relative rate expectations, but not driving FX moves independently.
- EUR: Stable and resilient, benefiting from USD softness rather than ECB action.
- JPY: Policy signalling and intervention risk are now embedded, limiting unchecked USD strength.
- CAD: Sensitive to US data and commodities, with upside in GBP/CAD capped near established resistance.
- AUD: Volatile around the RBA decision. Rate expectations are supportive, but “sell-the-fact” risk is real.
- NZD: One of the stronger recent G10 performers, supported by positioning shifts and rate expectations.
- CHF: Stable, acting as a secondary safe haven amid lingering USD credibility concerns.
- NOK & SEK: Tracking global risk sentiment and growth expectations rather than domestic drivers.
Lamera View
Markets have moved from repricing to confirmation. January reshaped G10 FX trends, but February will be about whether those moves are validated by policy and data.
The dollar no longer enjoys automatic support, but neither is it in freefall. Sterling and the euro remain supported, but neither is driving price action independently. This is no longer a market for unchecked momentum.
For those with currency exposure, this is an environment that favours structure over conviction, phased execution over timing bravado, and flexibility over forecasts.
Bottom Line
The easy moves have already happened. From here, FX becomes tactical, range-driven, and policy-sensitive rather than directional.
As long as confidence in US policy remains fragile, volatility will persist, but opportunity will come from reaction, not assumption.