The GBP/USD pair rose to 1.2537, marking a peak for the third consecutive day, driven by a subdued dollar. Donald Trump’s economic advisers are reportedly considering a more focused tariff strategy, diverging from his campaign pledges. Although Trump denied the claims, the report pressured the greenback, which had previously strengthened on hopes that broader tariffs might spur inflation and reduce the likelihood of further Federal Reserve rate cuts.

Meanwhile, sterling struggled as the UK’s Final Services PMI printed at 51.1, down from the previous and forecasted 51.4, marking the steepest decline in service sector employment since January 2021. Tuesday’s UK Retail Sales figures saw a notable 3.1% increase in December 2024, rebounding from the previous 3.4% decline, well above the forecasted 0.2% drop. With no notable UK data releases today, the GBP/USD pair will be driven by broader market sentiment around the dollar.

USD/CAD Sinks on Canada's Justin Trudeau Resignation Announcement

USD/CAD lost momentum near 1.4308 following the announcement that Canadian Prime Minister Justin Trudeau would resign. In addition to the looming political uncertainty, Canada’s federal government is considering an early release of a proposed list of American goods that could face retaliatory tariffs if incoming US President Donald Trump imposes tariffs on Canada. However, a decline in crude oil prices may have exerted downward pressure on the commodity-linked loonie.

Conversely, the dollar is subdued by President-elect Donald Trump’s comments that his tariff policy won't be pared back as he considers a more selective approach to tariffs. Friday’s remarks from Richmond Fed President Thomas Barkin signalled a restrictive policy stance as inflationary pressures are near the bank's 2% target. In today’s session, Canada’s Ivey PMI, US ISM Services PMI, and JOLTS Job Openings figures will significantly influence the USD/CAD movements.

EUR/USD Buoyed Ahead of Eurozone HICP Inflation

EUR/USD saw an upward tick near 1.0422 as the euro received support from stronger-than-expected European inflation data. The Spanish Services PMI surged to 57.3 from 53.1, exceeding the forecast of 54.1. Italy's Services PMI improved to 50.7, beating the previous 49.2 and the expected 50.0. France's Final Services PMI rose to 49.3, above the prior and forecasted 48.2, while Germany's climbed to 51.2. The Eurozone's Final Services PMI increased to 51.6, slightly above the predicted 51.4. Meanwhile, the Eurozone Sentix Investor Confidence Index slipped marginally to -17.7 in January from -17.5 in December.

Germany's Consumer Price Index (CPI) rose to 2.6% in December, up from 2.2% in November, exceeding the 2.4% expectation and reaching its highest level in nearly a year. On the dollar front, the greenback struggled amid President-elect Donald Trump’s reaffirmation that his tariff policy would not be scaled back, maintaining his firm stance on trade measures. In upcoming sessions, the Eurozone’s Core CPI Flash Estimates, US ISM Services Purchasing Managers' Index (PMI), and Wednesday’s Federal Reserve's December policy meeting minutes will drive the EUR/USD exchange rate.

GBP/JPY Strengthens Amid BoJ Rate Hike Uncertainty

GBP/JPY hovers near 197.98 as uncertainty about the Bank of Japan's (BoJ) next interest rate hike weighs on the Japanese Yen. In his recent speech, BoJ Governor Kazuo Ueda maintained a cautious tone, providing no clear indications of a potential rate hike this month. However, the cautious market mood will continue to support the safe-haven yen. On the contrary, sterling struggles following the UK’s latest services PMI report.

The S&P Global UK Services PMI decreased to 51.1, down from the previous and forecasted 51.4, indicating the sharpest decline in service sector employment since January 2021. Rising Bank of England (BoE) dovish bets and a modest downtick in USD continue to weigh on the pound. In the absence of any market-moving data from Japan, the UK Construction PMI and broader market sentiment will guide the GBP/JPY movements.

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