20/01/2025
Written by: Ian Morley
GBP/EUR
Summary:
The Pound remained firm against the Euro, trading near 1.2080, as the Bank of England (BoE) continues to hint at a cautious policy approach. In contrast, the European Central Bank (ECB) is widely expected to cut interest rates by 25 basis points this week, further pressuring the Euro. Concerns over persistent inflation in the UK provide underlying support for the Pound.
Outlook:
The ECB’s likely rate cut on Thursday is expected to weaken the Euro further, particularly if President Lagarde adopts a dovish tone during the post-meeting press conference. On the UK side, cautious optimism about inflation control supports the Pound, and further clarity may come from BoE officials’ speeches this week.
GBP/USD
Summary:
The Pound stabilised against the US Dollar, hovering above the 1.2700 mark. Positive employment data from the US drove the Dollar Index higher last week, but market expectations of a Federal Reserve interest rate cut next week have capped gains. The Pound’s resilience reflects broader market confidence in the BoE’s slow and steady approach to policy easing.
Outlook:
Attention shifts to the US CPI release on Wednesday, which could shape expectations for next week’s Fed rate decision. A higher-than-expected inflation reading may temper rate-cut bets, providing support for the Dollar. However, the Pound is likely to maintain stability given its recent resilience.
EUR/USD
Summary:
The Euro weakened to around 1.0550 against the Dollar as markets brace for the ECB’s final policy meeting of the year, where another rate cut is anticipated. Meanwhile, strong US labour market data supported the Dollar, but the upcoming US CPI data and a likely Fed rate cut create a cautious trading environment.
Outlook:
Markets will closely watch both the ECB’s decision and the US inflation figures. A dovish ECB outlook combined with strong US inflation data could drive further declines in the Euro. However, any deviation from expectations in the Fed’s rhetoric could introduce volatility.
AUD/USD
Summary:
The Australian Dollar dipped to its lowest level since early August, trading near 0.6400, amid expectations of a dovish Reserve Bank of Australia (RBA) stance during Tuesday’s policy meeting. The Aussie faces additional pressure from soft domestic growth data, while the US Dollar remains resilient ahead of inflation data and the Fed’s upcoming policy decision.
Outlook:
While the RBA is expected to hold rates steady, its communication will be critical. If the central bank signals a cautious stance amid subdued growth, the Australian Dollar could remain under pressure. US inflation data may also influence the pair significantly, especially with the Fed meeting around the corner.
Final Summary
The currency market remains cautious ahead of several critical events this week, including the ECB’s policy meeting and US inflation data. While the US Dollar holds firm amid strong economic data, expectations of rate cuts in both the US and Eurozone are creating mixed signals. The Pound remains stable, underpinned by cautious BoE policy expectations. As markets await clarity, traders should prepare for heightened volatility across major currency pairs.