Economic Update

February 2, 2026

US nominates Kevin Warsh as Fed Chair, raising questions on direction of travel

The US administration has nominated former Federal Reserve Governor Kevin Warsh as its pick to succeed Jerome Powell when his term ends in May. The confirmation process may face challenges, with at least one Republican member of the Senate Banking Committee indicating that they would block the nomination until the Department of Justice concludes its investigation into Powell and the Fed. Warsh has also only recently shifted his stance toward favoring lower interest rates, having historically taken a more hawkish stance.

The US government has entered a technical shutdown after temporary funding measures expired on Saturday. House Speaker Johnson has expressed confidence that an agreement to restore funding could emerge within 24 to 48 hours.

This week’s focus now shifts to labor market releases, culminating in Friday’s non farm payrolls report. A continuation of steady, if unspectacular, employment growth would reduce the case for near term policy loosening. Current market pricing suggests no expectation of an imminent rate cut.

GBP remains volatile as markets focus on Bank of England meeting

This week has opened much as the last one ended, with the GBP under pressure against the USD and displaying renewed volatility against other major currencies. The key difference is the presence of a significant domestic event: the Bank of England’s February Monetary Policy Committee meeting, press conference and updated forecast round on Thursday.

Markets do not expect a change in interest rates. The voting breakdown will attract attention, particularly if any members favor additional loosening. The accompanying Monetary Policy Report will update projections for inflation, growth and unemployment. A higher forecast for unemployment could imply a further drag on domestic demand and price pressures.

I expect to see a modest vote split, likely with one or two members supporting further easing, although not to the extent seen in December. The Bank is also likely to acknowledge ongoing economic underperformance. In my view, this leaves room for further interest rate cuts, which may weigh on the GBP over the course of the week.

ECB set to leave policy unchanged as Euro Area growth outperforms

Friday’s provisional Q4 GDP release delivered a slightly stronger-than-expected reading, hinting that growth may finally be stabilizing after two years of monetary loosening from the European Central Bank. The broader outlook remains uncertain, with the Euro Area exposed to potential shifts in US tariff policy ahead of the US mid term elections.

Last week’s provisional January CPI data showed declining inflation across most member states, with Germany the sole exception. The aggregate figure is due later this week, just before the ECB Governing Council meeting on Thursday. Additional releases include Euro Area January PMIs and Germany’s factory orders and industrial production for December. The ECB is widely expected to leave its policy stance unchanged, and the press conference will likely offer few signals.

The dataflow could offer mild support to the EUR, although German factory orders may reverse some of the defense driven strength seen in November. EURUSD could nonetheless retrace part of its recent gains, particularly if markets find equilibrium after last week’s US related volatility. Key uncertainties in the US still need resolution.

Banxico likely to hold rates as MXN and CAD encounter renewed pressure

Banxico is expected to maintain its policy rate at 7% later this week, following the recent decisions of the US Federal Reserve and the Bank of Canada. Unlike those central banks, however, there may be scope for additional easing as early as the next meeting. Inflation pressures show signs of easing and, although growth is projected to recover, it is likely to remain below recent averages.

Monthly investment data, released ahead of the meeting, indicate only a partial rebound from the significant downturn following the US “Liberation Day” tariff increase. The MXN has surrendered part of its recent strength, and further retracement is possible if no new policy announcements emerge from the US.

The CAD faces similar risks. Friday’s Canadian labor market release could generate volatility. Recent employment reports have shown strength in part time and full time roles individually, but not simultaneously. Consensus expects a modest increase of around 5,000 jobs. Any disappointment could create additional downside pressure on the CAD.

Author 

Views expressed in this commentary are those of the author, and may differ from your appointed Moneycorp representative. This commentary does not constitute financial advice. All rates are sourced from Bloomberg and forecasts are taken from Forex Factory.