US PCE, PMIs and remarks from Davos could impact Fed cut betsBoJ to stand pat; focus to fall on guidance after election reportsUK CPI and retail sales data may confirm bets of more BoE cutsEurozone PMIs and Australian jobs data also on the agendaInvestors Continue to Price in Two Fed Rate Cuts in 2026The US dollar outperformed all its major peers for another week, even after the US Department of Justice opened a criminal investigation into Fed Chair Jerome Powell, with the Fed Chief saying that the threats are a “pretext”, aimed at putting extra pressure on the Fed to lower interest rates more aggressively.Expectations about how the Fed may proceed with interest rates this year have not changed much as Powell’s response to the accusations showed little signs of relenting, and perhaps as the CPI and PPI data for December showed no signs of easing in inflation. Both the headline and core CPI rates remained unchanged at 2.7% y/y and 2.6% respectively, while the PPIs revealed some acceleration.According to Fed funds futures, investors are penciling in 54bps worth of rate cuts by the end of the year, which means that two quarter-point reductions are fully priced in, despite the Fed’s latest dot plot pointing to only a single one.Will More Signs of Sticky Inflation Weigh on Fed Bets?With all that in mind, dollar traders next week are likely to turn their focus to the PCE inflation data for November, due out on Wednesday, as well as the preliminary S&P Global PMIs for January, scheduled for Friday.The PCE figures are the Fed’s favorite inflation metric, and thus, should they confirm the stickiness in consumer prices, investors may take some basis points worth of rate cuts off the table, especially should the PMIs reveal that the US economy entered the new year on a solid footing.With the latest NFP report suggesting that the labor market is not suffering as previously thought, and with the Atlanta Fed GDPNow model pointing to a robust 5.3% q/q growth rate for the last quarter of 2025, two rate cuts may be too many for the Fed.However, market participants may be taking into account the likelihood of the Fed leaning somewhat more dovish under its new leadership. According to news media, US President Trump is expected to announce his pick for Powell’s successor by the end of this month.World Leaders Gather in DavosThe World Economic Forum in Davos, Switzerland, could also attract special interest as its core fundamental value of coordinated global economic order is being tested. US President Trump is expected to appear, and it will be interesting to see whether his tariff-policies, the military intervention in Venezuela and his threat of taking over Greenland will be matters of discussion. On top of that, any remarks regarding his feud with Fed Chair Jerome Powell could also captivate market attention.BoJ Decides on Policy Amid Snap Election ReportsDuring the Asian session Friday, the Bank of Japan will announce its first monetary policy decision for 2026. In December, the Bank raised interest rates by 25bps to levels last seen 30 years ago and signaled its readiness to continue raising rates.However, this week, news hit the wires that Prime Minister Takaichi is planning to call a snap election in February. With her approval rating at around 70%, she may be confident that her ruling Liberal Democratic Party (LDP) will widen its majority in the lower house of Parliament, which will allow her to proceed with her spending plans more easily.After failing to capitalize on the hawkish BoJ decision, the Japanese yen came under strong selling interest following the election news, not only due to speculation that the nation’s debt will increase, but also due to bets that the BoJ’s hands may be tied ahead of the election. Indeed, Japan’s Overnight Index Swaps (OIS) market is indicating that the next rate hike may happen in July.The slide in the yen has revived concerns about a potential intervention by Japanese authorities, with Finance Minister Katayama resuming such warnings. However, history has shown that intervention on its own could only have a brief effect. For a long-lasting recovery in the yen, the BoJ may need to raise interest rates as well.Thus, although the Bank is largely anticipated to refrain from acting next week, traders may be eager to find out whether officials are indeed planning to wait until summer before they raise interest rates again, or whether they are planning to act sooner to make sure that further weakness in the yen will not fuel inflation through higher import costs.Will UK Inflation Hit BoE’s Target Sooner than Previously Estimated?In the UK, the employment report for November will be released on Tuesday, the CPI and PPI inflation data for November on Wednesday, while the retail sales for December and the flash PMIs for January will come out on Friday.At its last gathering for 2025, the Bank of England cut interest rates by 25bps to 3.75%, the lowest in nearly three years, but the decision was a close call, taken by a 5-4 vote, with 4 members preferring to stand pat. In the statement accompanying the decision, the Bank noted that the “easy part” of its easing cycle was over, suggesting that the bar for future reductions in borrowing costs will be higher this year.According to the UK Overnight Index Swaps (OIS) market, similarly to the Fed, investors are expecting nearly two quarter-point reductions by the end of the year. BoE’s policymaker Alan Taylor said on Wednesday that inflation could hit their target sooner than previously estimated given cooling wage growth and thus, monetary policy could normalize at neutral sooner rather than later. Governor Andrew Bailey shared a similar view, noting that inflation could fall to target in April or May.Bearing all that in mind, data pointing to both a slowdown in wages and further cooling of inflation may corroborate the aforementioned view and thereby encourage investors to increase their BoE rate cut bets. This could prove negative for the British pound, especially against the euro. The ECB has confidently taken the sidelines in recent meetings, noting that they are in a “good place”, with traders expecting it to remain on hold throughout the whole year.Eurozone Flash PMIs and Australia’s Employment Report on TapSpeaking about the Eurozone and the ECB, the minutes of its latest monetary policy meeting will be released on Wednesday. At that meeting, the ECB decided to hold interest rates unchanged, reiterating its “good place” mantra and revising upward its growth and inflation projections. With the market not expecting any move this year, it will be interesting to see whether there were any members discussing the likelihood of rate hikes at some point in the not-too-distant future.The Eurozone’s flash S&P Global PMIs for January will be released on Friday, and traders may be eager to find out whether the ECB was correct to revise its GDP projections higher.Apart from the BoJ, which is the sole major central bank in a hiking cycle, the RBA is the only other major central bank that discussed the likelihood of starting its own rate-hike path. According to Australia’s Overnight Index Swaps (OIS) market, there is a noticeable 25% chance of a 25bps rate increase at the RBA’s upcoming gathering on February 3, with such an action fully priced in by August.The divergence in monetary policy expectations between the RBA and the Fed has kept the aussie/dollar pair in an uptrend mode since November 21 and a solid employment report from Australia on Thursday could push it higher as traders become more convinced that the RBA will have to press the hike button in one of its upcoming meetings.Ahead of Australia’s jobs report, China will release its GDP for Q4, alongside the industrial production, retail sales and fixed asset investment data for December. Upbeat numbers could help the currencies of Australia and New Zealand, given that both nations are main trading partners with the world’s second-largest economy.As for the earnings season, Netflix (NASDAQ:NFLX) will announce its quarterly results on Tuesday after the closing bell.