Economic Update

January 5, 2026

US geopolitical developments add complexity for USD as markets await payrolls

Few anticipated the US military operation in Venezuela that resulted in the extradition of President Maduro and his wife to the US mainland. Market reaction has been muted, despite regional protests and uncertainty surrounding Washington’s stated intention to “run things for a while.” Questions remain over whether de facto President Delcy Rodríguez will permit free and fair elections, and what this means for oil prices and regional stability. Is there a second phase to this operation, or was it solely about removing Maduro from office? 

Meanwhile, attention shifts to US labor market data for December, due at the end of the week. November’s figures were mixed, with stronger payroll growth offset by a rise in unemployment and signs of weakening hiring intentions. These dynamics could complicate the Federal Reserve’s policy outlook. The USD has struggled against the EUR and GBP but remains resilient versus the JPY. Whether these trends persist will depend on the upcoming data.

UK begins 2026 seeking momentum but finding little

The UK economy closed 2025 on a subdued note, despite a Bank of England rate cut offering limited relief to businesses and consumers. Policymakers will hope that inflation continues to ease, creating scope for further reductions in interest rates in the months ahead. At the same time, the government will be looking for stronger growth to sustain tax revenues and fund the spending commitments outlined in the recent Budget.

Provisional December PMI data was marginally better than expected, but attention now turns to the final estimates due this week. Beyond that, the UK data calendar remains light, leaving markets to focus on developments elsewhere. Sterling ended the year firmer, challenging $1.35 and €1.15. The question now is whether that momentum can be maintained, or if concerns over the UK’s lack of economic traction will weigh on sentiment.

Euro Area data under scrutiny – will the ECB really hold rates steady all year?

This week was expected to be relatively quiet, but several releases will shape market sentiment. Spanish labor market data for December showed employment gains and lower unemployment, consistent with recent solid growth. Later in the week, final services PMI readings, provisional CPI inflation figures, and manufacturing activity data are due, with inflation likely to be the key focus.

If headline CPI falls to 2% or below, arguments for further rate hikes will weaken. Moreover, continued signs of economic softness would strengthen the case for policy easing later in the year. The recent dip in EURUSD appears driven by external factors, but domestic weakness is not yet fully priced in.

Canada’s labor market in focus after three months of upside surprises

Canada’s labor market has defied expectations for three consecutive months, with anticipated weakness failing to materialize. However, recent gains have been concentrated in part-time employment, raising questions about sustainability. Bloomberg consensus suggests December data may show a reversal, with part-time job growth slowing and unemployment edging higher.

With few other domestic releases this week, these figures could weigh on the CAD, potentially pushing USDCAD back above $1.3850. Looking ahead, November GDP data due at the end of January could add further pressure if it confirms ongoing economic challenges.

USDMXN hovers near 18 as regional concerns weigh on recent peso gains

USDMXN touched 17.86 last Friday, but geopolitical developments in Venezuela erased early-year gains. While further US intervention in the region appears unlikely based on recent statements, the episode may unsettle investors and raise questions about Washington’s approach to Latin America.

Domestically, attention turns to December CPI inflation data due Thursday. A downside surprise could increase the likelihood of another Banxico rate cut in Q1 2026, adding to pressure on the peso.

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.