G10 FX Talking: Dollar can stay supported in the first quarter in Daily Currencies Ratings 19/01/2026 EUR/USD: Choppy first quarter • Having sold off on December seasonals, the dollar should find some more support in the first quarter. US data has remained quite firm – certainly not weak enough to demand early Federal Reserve easing. That said, our team favours more Fed rate cuts in March and June compared to a market pricing June and December. • Political pressure on the Fed is leading to some dollar selling. However, investors are wary of chasing this theme and unless the Department of Justice charges Fed Chair Jerome Powell, we think the market will remain reluctant to push the ‘Sell America’ theme on this. • Our base case remains that fiscally-inspired eurozone growth emerges from 2Q onwards and it is euro strength which delivers 1.22 by the end of the year. USD/JPY: Snap elections pose one more risk to the yen • The New Year has started with a focus back on Japanese politics. Here, the popular PM, Sanae Takaichi, is considering a snap election in February to secure an LDP majority in the Lower House. The view here would be that, if successful, she could pivot more towards super-loose fiscal and monetary policy – weakening the yen. Given Japanese CPI should be subdued in the first quarter, this looks the most likely window for 160/162 in USD/JPY. • That said, we suspect Tokyo would still intervene at 160. You never know, but the US could join them in bilateral intervention since it would be in Washington’s interests as well. • The case for the yen to recover on undervaluation is weakening. GBP/USD: Positioning and BoE provide temporary relief • Sterling is enjoying a brief renaissance, helped by the Bank of England which was less than dovish in December, and a buyside which had found themselves heavily short sterling in late November. On the BoE story, we favour two further 25bp cuts in March and June in the 3.75% policy rate. Headline inflation should be falling below 2% in April and the BoE should have less to fear over sticky wage inflation – a key worry for them in December. • Also helping sterling has been a UK government trying to get a little closer to Europe, with the focus now on ‘dynamic alignment’. • There is still a risk that PM Keir Starmer and Chancellor Rachel Reeves could be forced out after local elections in May – a big £ negative. EUR/JPY: Hard to fight this powerful trend • Looking at the potential forces driving the euro and yen this year it is hard to stand in the way of this powerful bull trend. On the yen side, PM Sakaichi’s policies are yen-negative and the next Bank of Japan rate hike may not emerge until December. On the euro side, we are looking for a better year here, where fiscal stimulus powers eurozone growth higher sequentially. 200 seems an impossible number for EUR/JPY – but we traded close in 1990. • The Japanese have a bigger problem with a weak yen than the European Central Bank has with a strong euro. The ECB seems more interested in EUR/USD – particularly its speed of appreciation. • A substantial change in the benign risk environment is probably the main threat to EUR/JPY this year. EUR/GBP: Bull market correction • On reflection, the market had probably been too bearish on sterling in late November – positioning in the asset management community certainly suggested that. While we can’t rule out a further correction towards the 0.8600 area, we are still happy to sit with a multi-quarter bulli