What are the Five Currency Pairs to Watch in January and Why?

Which currency pairs are the most interesting to consider as part of your forex trading strategy in January 2024? This article uses fundamental analysis and price action to explore the top 5 FX pairs to watch this month.

Forex Monetary Policy
5 min read
Craig Erlam
Craig Erlam
Contributing Author at OANDA

Is the Great Pivot Underway?

The central bank pivot is underway; the only question now is who will be the first to pull the trigger on rate cuts and when. Having dominated trade in the run-up to the new year, speculation around rate cuts will continue to be the driving force in early 2024 in currency markets. Of course, there is an exception, with one central bank poised to raise interest rates for the first time in 17 years.

With that in mind, here are five currency pairs to look out for this month as part of your forex trading watchlist.

EUR/USD - Will the ECB be ready to acknowledge rate cuts are coming?

The European Central Bank used its December 2023 meeting to push back against market expectations rather than signalling that rate cuts are coming. Taken in isolation, that looked like a strange move, as inflation has fallen considerably and investors are convinced that not only will the central bank cut rates next year, it’ll do so quite aggressively. But that may explain why the ECB pushed back the way it did.

A day earlier, the Federal Reserve, through its dot plot, indicated it expects to cut rates by 75 basis points next year, which sent markets into a frenzy. By the end of the day, markets were pricing in 150 bps of cuts in 2024. And not just for the Fed, but for the ECB too. Rather than add fuel to the fire, the ECB attempted to throw a little snow on instead, albeit to no avail. Markets continued to price in 150 bps of cuts, and policymakers continued to push back.

As the ECB doesn’t release a dot plot, it doesn’t have to tell investors where it expects interest rates to go next year. But if it is going to cut rates in March, it won’t be able to hide forever. The meeting on January 25 may be the moment when it is forced to acknowledge that a rate cut in March is possible.

SOURCE: EUR/USD,, 12/22/2023

EUR/USD has trended higher again recently, buoyed by a dovish Fed and pushback from the ECB. It struggled near 1.10, as it did in late November, which may continue to be an important technical level.

USD/JPY - Is the Bank of Japan ready to tighten monetary policy?

Speculation is mounting that the Bank of Japan may soon raise interest rates for the first time since 2007 and exit negative interest rates for the first time since 2016. It has already widened the band of its yield curve control (YCC) in order to allow more flexibility and better functioning, but with inflation running above target and wage growth expected to remain healthy, more tightening may be necessary.

If and when that tightening will come isn’t clear, but central banks often try to communicate their intentions beforehand, and the BoJ could use this meeting to suggest the conditions are close to being met, most notably wage growth, which warrants raising rates or bringing an end to YCC.

SOURCE: USD/JPY,, 12/22/2023

GBP/USD - Buoyed by the Fed acceptance that rate cuts are coming

The Federal Reserve will bring January to an end, announcing its decision on interest rates on January 31st after a month littered with high-profile economic data. After the December meeting, markets priced in 150 bps of rate cuts next year on the basis of the dot plot signalling 75 bps at that time, and the data in between could go a long way in indicating who will be closer.

The Fed minutes from the December meeting will be released on January 3, which will set markets up for the new year. After that, the jobs report two days later will tell us whether the labour market continued to cool in December, and less than a week later, on November 11, CPI data will tell us whether price pressures continued to ease. There’s a number of other economic releases over the month too that will determine whether the Fed adds fuel to the rate-cutting fire or seeks to do the opposite.

SOURCE: GBP/USD,, 12/22/2023

GBP/USD has been drifting higher in recent months but that appears to be slowing just as markets price in additional rate cuts from the BoE.

USD/CAD - Is the first rate cut coming early in 2024?

Markets are pricing in a number of rate cuts in 2024, starting as early as April, which doesn’t leave the Bank of Canada much time to prepare investors for the first move. The meeting on January 24 could provide such an opportunity; it may just be a matter of whether it takes place or not. Inflation and labour market figures will be released earlier in the month, which may determine how confident the central bank is feeling.

SOURCE: USD/CAD,, 12/22/2023

USD/CAD has continued to drift lower in December on the back of a more dovish Fed, trading near the lows of the first five months of the year.

EUR/GBP - Remains rangebound as markets price in many rate cuts next year

There’s no Bank of England meeting in January, but there is some data that policymakers will be paying very close attention to. Most notably, CPI figures on January 17 fell much faster than expected a month earlier. GDP and retail sales will also be of interest, as the MPC may be more willing to tolerate higher wage and service inflation in the near term if other readings indicate it may not last.

SOURCE: EUR/GBP,, 12/22/2023

EUR/GBP has recovered in December but remains in the same range it’s traded in since May.


Now that you've taken a detailed look at some of the currency pair options to consider as part of your FX strategy, you may want to learn more about trading forex with OANDA.


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