20/01/2025
Written by: Ian Morley
GBP/EUR
Summary:
GBP/EUR pair saw minimal movement to kick off the week, with traders focusing on inflation data from Germany and the EU. German CPI figures are expected to rise slightly due to base effects from fuel prices. However, the broader disinflation trend in Europe remains dominant, reinforcing expectations of ECB rate cuts later this year. The pound remains under pressure amid a lack of positive momentum in the UK economy.
Outlook:
The near-term outlook for GBP/EUR will hinge on how inflation figures align with market expectations. Any deviation could briefly impact the pair. However, with the ECB on track for monetary easing, downside risks for the euro could limit any substantial GBP weakness. UK-specific data remains sparse this week, keeping the pound’s movements reactive to euro developments.
GBP/USD
Summary:
GBP/USD began 2025 with losses, sliding to its lowest level since May 2024, before staging a minor recovery. The dollar’s strength is supported by robust US manufacturing PMI data and a hawkish Federal Reserve narrative. In contrast, the pound remains weighed down by dovish Bank of England expectations and continued economic challenges.
Outlook:
US labour market data, particularly Friday’s nonfarm payrolls, will likely dominate the week’s action for GBP/USD. Should the data support continued economic resilience in the US, the dollar could remain well-supported. Conversely, dovish signals from the BoE are likely to cap any meaningful GBP gains.
EUR/USD
Summary:
EUR/USD has drifted lower, nearing the critical parity level, as expectations for ECB rate cuts continue to weigh on the euro. German inflation data today is anticipated to show a slight uptick, though it’s unlikely to significantly alter market sentiment. The dollar’s strength is further bolstered by a resilient US economy and cautious Fed rhetoric.
Outlook:
While technical indicators point to further downside for EUR/USD, the market will closely watch Eurozone PMIs and inflation figures for short-term direction. Any significant surprises could temporarily affect sentiment. US economic data, particularly nonfarm payrolls, will remain the key driver for the pair this week.
AUD/USD
Summary:
The Australian dollar has managed to hold its ground against the US dollar, supported by stronger-than-expected PMI data from both Australia and China. Despite the AUD’s recent gains, the pair remains overshadowed by the dollar’s broad strength amid a hawkish Fed.
Outlook:
Further movements in AUD/USD are likely to depend on global risk sentiment and US labour market data later in the week. Should risk appetite improve or China deliver positive surprises, the AUD could find some support. However, the Fed’s cautious tone and solid US economic indicators are likely to keep the dollar on the front foot.
Final Summary:
The US dollar continues to dominate across the board, supported by resilient economic data and a cautious Fed approach to rate cuts. This week’s focus will centre on inflation data from Europe and critical US labour market reports. While short-term corrections are possible, the dollar’s medium-term strength appears well-supported.