In January, Germany's economic outlook worsened significantly. The ZEW sentiment index dropped to 10.3 from 15.7 in December. On top of that, weak household spending and low demand in construction are holding back the economy. Political challenges, including difficulties in forming a government coalition, are also causing concerns and putting pressure on the euro.

Meanwhile, economic data from the UK showed mixed results. Wages rose by 5.6%, but job growth was much slower, with only 35,000 new jobs compared to 173,000 previously. This pushed the unemployment rate up to 4.4%. As a result, the British pound weakened, with markets expecting the Bank of England to cut interest rates at its next meeting.

In the US, President Trump has started his term with bold plans for trade, immigration, tax cuts, and deregulation. These could boost company profits but may also lead to higher inflation, potentially forcing the Federal Reserve to reconsider its interest rate policies. Markets are uncertain about how Trump will lower costs, inflation, and interest rates.

European Central Bank (ECB) member François Villeroy de Galhau said the ECB is ready to cut borrowing costs further to support the economy. He noted that inflation is under control and that consistent rate cuts could provide stability and boost confidence. However, the euro remained steady, as these expectations seem to already be factored into the market.

The pound is likely to stay steady today since no major UK economic data is due. Markets now believe there’s a 91% chance the Bank of England will cut interest rates by 0.25% to 4.5% at its February 6 meeting, with more cuts expected to support the economy.

Lastly, President Trump’s plan to impose tariffs on Mexico, Canada, and China is affecting markets. Safe-haven assets gained, and the US dollar strengthened against other major currencies. In his first two days in office, Trump signed over 200 executive orders.

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