The US dollar is on investors' radar this week. Investors will be paying close attention to the release of key data (and US inflation data) that were supposed to be released last week but were suspended due to a delay in a government spending bill. Recent indicators point to a slowdown in the labor market (report published on February 4). Investors' attention will also be focused on inflation reports due on Friday. At the moment, analytical and high-frequency indicators suggest that inflation is no longer accelerating and is slowly declining; However, it remains difficult, especially in services, which keeps core inflation above the Federal Reserve's 2% target.
According to the latest CME FedWatch odds, markets continue to price in a measured easing path. Odds show low conviction around an imminent rate cut in March, around 20% to 23%, with investors seeing potential cuts mid-year once inflation and labor market trends become clearer. Future prices imply a 2026 base case of between 50 and 75 basis points of cumulative cuts. These rate expectations appear to help limit any rise in the dollar.
Meanwhile, in the euro zone, inflation is below target. President Lagarde stated last week that inflation in the euro zone is in a good place despite the possibility that inflation figures will move unevenly in the coming month due to unforeseeable geopolitical risks. However, policy decisions will not be driven by every data release. Eurozone money markets are pricing in a much firmer hold on rates. Market prices imply around a 90% chance of no change at the March 2026 governing council meeting, with minimal easing planned for the entire year (on the order of 0 to 10 basis points and, in some scenarios, no cuts). Inflation is already at or below target, and a stronger euro is putting disinflationary pressure. US initial rates are expected to fall faster (by 50 to 75 basis points) compared to euro area rates. The expected short-term rate differential narrows in favor of the euro, mechanically supporting the rise. 
Last week, they held rates steady at 3.75%, but in a close 5-4 vote, with a surprisingly four members opting for an immediate 25 basis point cut. The guidance states that rates are likely to be “reduced further.” The Bank of England expects inflation to fall towards 2% from April, and markets and economists are predisposed to a cut in the spring (April-March). The ECB is more stable than the BoE. The Bank of England's message about cuts likely to come later does not support a continued decline unless the ECB turns unexpectedly dovish from its holding position. Weak UK data for March/April (wages, services CPI and the April CPI figure) will be key indicators of whether the odds of a cut in April increase, which could put pressure on sterling. 
In conclusion, rate differentials are compressing, but not uniformly. The eventual easing bias of the Fed limits the strength of the dollar, the stability of the ECB supports the euro and the proximity of the Bank of England to new cuts introduces a downside risk for the pound sterling in relative terms.
