[MARKET UPDATE] GBP loses ahead of the BoE as PM Starmer faces scrutiny; EUR flat looks to ECB, AUD pulls back amid metals

• DXY is kept afloat as it continues to claw back losses seen towards the end of January. That being said, the upside limited following mixed data releases stateside and with plenty of focus on geopolitics amid reports that US-Iran talks scheduled for Friday were off, and on again, while there were comments from Fed's Cook who said that she is focused on inflation risks and that progress on inflation has stalled. DXY resides has topped resistance seen around the 97.70-97.75 area to reach a current high of 97.83, still some way off the 23rd Jan high at 98.481.
• GBP/USD is among the laggards heading into the BoE, but likely more on political factors at the moment, with UK PM Starmer's premiership coming under scrutiny for his decision to appoint Peter Mandelson as the US ambassador despite links to Epstein. Back to the BoE, the Bank Rate is expected to be maintained at 3.75% , with February framed as a guidance and forecast meeting. Focus will be on the vote split and guidance after the MPC was narrowly divided in December, voting 5–4, and amid signs of firmer activity, including the strongest private-sector business growth since April 2024 and resilient retail sales. Desks are in unison that a hold is a done deal, although views are split between a 6-3 vote and a 7-2 vote. Desks are in unison the MPC will maintain the “gradual downward path” guidance. Taylor and Dhingra are likely to vote for a cut, with Ramsden on watch as the potential third dissenter. GBP/USD resides towards the bottom end of a 1.3576-1.3664 range.
• EUR/USD resides in a narrow 1.1783-1.1809 range ahead of the ECB announcement and presser. The ECB is expected to keep its rates on hold, a view held by the likes of Goldman Sachs and Morgan Stanley. Data developments play in favour of keeping rates steady; inflation dipped below the Bank’s target in January, but largely due to base effects. Focus this meeting will be on any commentary surrounding the stronger EUR, trade/geopolitical uncertainty and higher gas prices.
• USD/JPY continues rising amid the firmer USD with the pair back above 157.00 with yen weakness persisting throughout the week ahead of the snap elections on Sunday.
• Antipodeans are softer with AUD the G10 laggard amid headwinds from the subdued risk appetite and selling pressure in commodities.

The GBP is losing ground ahead of the Bank of England (BoE) as political scrutiny on PM Starmer weighs on sentiment, while the EUR is flat as the market awaits the European Central Bank (ECB) meeting. The AUD's pullback is linked to weaker risk appetite and commodity selling pressures. Overall, these dynamics highlight currency-specific risks amid central bank policy uncertainties and geopolitical developments, which could drive volatility in FX rates in the near term.