20/01/2025
Written by: Ian Morley
GBP/EUR
Summary:
GBP/EUR saw a drop to near 1.19 as the Pound weakened due to technical factors. Despite positive UK retail data showing a 3.1% increase in December, the overall economic outlook remains subdued. Meanwhile, Germany’s Industrial Production grew by 1.5% MoM in November, surpassing expectations, but the Euro continues to face selling pressure as markets anticipate aggressive European Central Bank (ECB) rate cuts in 2025.
Outlook:
The Pound could regain some ground if expectations for fewer Bank of England (BoE) interest rate cuts materialise, with projections now lowered to two 25bps reductions. Any sustained upward momentum for the Euro may be capped due to the ECB’s anticipated rate cuts and ongoing inflation concerns in the Eurozone.
GBP/USD
Summary:
GBP/USD declined sharply, losing nearly 1% on Wednesday, trading below 1.2300, its lowest level in over a year. This weakness is attributed to strong US Dollar performance, supported by firm US bond yields and cautious Fed policies in light of potential tariff plans from President-elect Donald Trump.
Outlook:
The Pound remains under pressure due to rising UK gilt yields and fears of persistent inflation. The US Dollar may see further strength ahead of Friday’s Nonfarm Payroll (NFP) report, which could provide additional clues about the Fed’s policy trajectory.
EUR/USD
Summary:
EUR/USD continued its downward trajectory, edging lower to 1.0310. Weaker-than-expected German Factory Orders, which fell by 5.4% in November, and concerns over aggressive ECB rate cuts weighed on the Euro.
Outlook:
The pair is likely to remain under pressure, with investors focusing on Eurozone Retail Sales data later in the day. Hawkish tones from the Fed suggest the USD could maintain its strength against the Euro in the near term.
AUD/USD
Summary:
The Australian Dollar extended losses for the third consecutive day, trading near two-year lows at 0.6200. Mixed domestic data and deflationary concerns from China weighed on the AUD. Australia’s Retail Sales rose by 0.8% in November, but this fell short of market expectations.
Outlook:
With the market anticipating Friday’s US NFP report and further hawkish Fed policies, the AUD/USD pair is expected to face continued downside risks. Additionally, China’s economic challenges could add further headwinds for the Australian Dollar.
EUR/CHF
Summary:
EUR/CHF remains influenced by contrasting economic conditions between Switzerland and the Eurozone. Switzerland’s strong economic data contrasts with the Eurozone’s economic stagnation and declining business sentiment.
Outlook:
The Euro may weaken further against the Swiss Franc if the ECB implements expected rate cuts, while the Swiss National Bank maintains its current stance. Geopolitical and trade uncertainties could also bolster the CHF as a safe-haven currency.
Final Summary:
The US Dollar continues to outperform amid cautious Fed sentiment and strong bond yields, while the Euro and Pound remain pressured by weak economic outlooks and policy divergence. Investors are focused on upcoming data, particularly Friday’s US Nonfarm Payrolls, which could shape market sentiment further.