20/01/2025
Written by: Ian Morley
GBP/EUR
Summary:
GBP/EUR reached 2024 highs amid heightened political uncertainty in France. French Prime Minister Michel Barnier’s controversial move to push through the budget without parliamentary approval has prompted opposition parties to table no-confidence motions. Marine Le Pen’s alignment with a left-wing coalition has further intensified the political crisis, weighing on the Euro.
Outlook:
Further volatility is likely as markets react to developments in France. If the French government collapses, the Euro may face additional downward pressure, potentially extending GBP/EUR gains. UK economic releases, including GDP figures later this week, could provide further direction for the Pound.
EUR/USD
Summary:
The Euro weakened significantly, with EUR/USD trading below 1.0500. Concerns over a potential collapse of the French government and robust US economic data, including better-than-expected ISM Manufacturing PMI figures, have strengthened the US Dollar.
Outlook:
With the US JOLTS Job Openings data and additional Federal Reserve commentary scheduled for today, further USD strength is possible. Political uncertainties in France will remain a key factor for the Euro. Any resolution or escalation in the crisis could significantly impact EUR/USD in the near term.
GBP/USD
Summary:
GBP/USD dropped toward the mid-1.2600s, pressured by weak UK retail sales and a modest uptick in the US Dollar. However, reduced expectations for another Bank of England (BoE) rate cut and a wait-and-see approach ahead of key US data have kept the pair in a consolidation phase.
Outlook:
Traders will closely monitor US economic data, particularly Nonfarm Payrolls (NFP) on Friday, for indications of the Fed’s policy direction. Meanwhile, UK data releases, combined with broader risk sentiment, could influence the pair’s movement. A dovish Fed stance may lend support to GBP/USD, while stronger US data could see further downside.
AUD/USD
Summary:
The Australian Dollar faced renewed selling pressure, trading near 0.6470, as US tariff threats and strong US economic data lifted the Greenback. Nonetheless, hawkish comments from RBA Governor Michele Bullock and solid Australian retail sales data helped limit further losses.
Outlook:
The Australian Dollar may remain under pressure if global trade tensions persist. However, positive domestic data and expectations for steady RBA policy could provide intermittent support. Upcoming US and Australian GDP releases will be pivotal in determining the pair’s trajectory.
Final Summary
The foreign exchange market remains volatile amid a mix of geopolitical and economic developments. The US Dollar continues to benefit from strong economic data and risk aversion, while political uncertainties in France weigh heavily on the Euro. The week ahead promises significant movement as markets digest key economic releases and central bank commentary.