20/01/2025
Written by: Ian Morley
GBP/EUR
Summary:
GBP/EUR remains near its 2024 highs. Despite a temporary dip after Bank of England Governor Andrew Bailey hinted at four interest rate cuts in 2025, the Pound recovered, supported by broader market risk-on sentiment. On the other side, the Euro is under pressure due to political instability in France, where the collapse of the Barnier government after a no-confidence vote highlights fiscal challenges within the Eurozone.
Outlook:
The Pound may face headwinds from domestic concerns, including the Bank of England’s dovish stance. However, the ongoing political instability in France could limit the Euro’s gains, keeping GBP/EUR trading within current ranges. Key drivers to watch include Eurozone retail sales data and upcoming comments from ECB officials ahead of their December meeting.
GBP/USD
Summary:
GBP/USD has held above the 1.2700 mark amid subdued demand for the US Dollar. Weak ISM Services and ADP payroll figures from the US raised expectations of a 25bps Fed rate cut in December, weighing on the Dollar. However, expectations of a cautious Fed stance and upcoming tariff measures from President-elect Trump have capped the Pound’s gains.
Outlook:
GBP/USD is likely to remain range-bound ahead of the US Nonfarm Payrolls report on Friday. The Pound’s movements will also depend on further clarity around the Bank of England’s rate cut outlook. For the Dollar, weaker-than-expected employment data could reinforce bearish sentiment, but geopolitical risks may support safe-haven demand.
EUR/USD
Summary:
EUR/USD is trading slightly higher, clinging to levels above 1.0500, as Dollar weakness supports the pair. Political uncertainty in France and concerns about the Eurozone’s economic outlook, including a potential ECB rate cut next week, are weighing on the Euro. The Dollar, meanwhile, remains under pressure due to softer US data and dovish Fed expectations.
Outlook:
Short-term movements in EUR/USD will hinge on the US Nonfarm Payrolls data and any ECB policy signals. While the political crisis in France poses risks for the Euro, broader Dollar weakness may continue to offer support. However, significant upside appears limited given the Eurozone’s economic challenges.
AUD/USD
Summary:
The Australian Dollar declined following disappointing Q3 GDP data, which fell short of market expectations. This has increased speculation about an early rate cut by the Reserve Bank of Australia (RBA). Meanwhile, the US Dollar’s weakness provides some relief for the Aussie, though geopolitical risks and tariff concerns keep the pair under pressure.
Outlook:
AUD/USD faces downside risks as bearish momentum dominates. Any signs of softer US labour market data could offer temporary support, but further deterioration in Australian economic indicators or dovish RBA comments may push the pair lower. The key support level to watch is 0.6285, while resistance lies at 0.6512.
Final Summary
The currency market remains highly sensitive to central bank signals and geopolitical events. GBP continues to benefit from relative strength against the Euro, while the USD shows weakness amid increasing expectations of a Fed rate cut. However, risks remain elevated due to political instability in the Eurozone and ongoing trade and tariff concerns globally. All eyes are now on the upcoming US Nonfarm Payrolls report, which could set the tone for the next phase of market movement.