20/01/2025
Written by: Ian Morley
GBPEUR
Summary:
GBP/EUR showed modest recovery, supported by a strong UK housing market report and stabilising sentiment. Meanwhile, the Euro faced downward pressure as investors anticipated the European Central Bank (ECB) to lower its Deposit Facility Rate by 25 basis points to 3%, reflecting subdued inflationary pressures and ongoing economic challenges in the Eurozone.
Outlook:
The ECB’s policy decision and President Christine Lagarde’s statements will be pivotal in determining the Euro’s near-term direction. If the ECB signals additional dovish measures, GBP/EUR could gain further ground. In the UK, the market focus will shift to the monthly GDP data due on Friday, which could offer insights into the strength of the British economy as we approach year-end.
GBPUSD
Summary:
GBP/USD regained some strength after recent losses, trading near 1.2800. The pair benefitted from a weaker US Dollar, which faced selling pressure as markets fully priced in a 25-basis point Federal Reserve rate cut next week. Additionally, robust UK housing data offered further support to the Pound.
Outlook:
The Fed’s upcoming policy decision remains a critical factor for GBP/USD. Any dovish surprises or weak US Producer Price Index (PPI) data could bolster the pair. Domestically, UK GDP figures will play a key role in setting the tone for the Pound.
EURUSD
Summary:
EUR/USD recovered from recent losses, trading above 1.0500 as markets anticipate the ECB’s policy meeting. While a 25-basis point rate cut is widely expected, investors remain focused on the tone of the forward guidance amidst signs of easing inflation and weak economic growth in the Eurozone. The US Dollar held steady as inflation data aligned with forecasts, maintaining expectations of a Fed rate cut.
Outlook:
The ECB’s decision and commentary will heavily influence the Euro. Should the ECB adopt a more dovish stance, EUR/USD may face renewed selling pressure. Meanwhile, US PPI data and Fed rate guidance will also drive movement in this pair.
AUDUSD
Summary:
AUD/USD climbed above 0.6400, buoyed by stronger-than-expected Australian employment data. The Unemployment Rate fell to 3.9% in November, and Employment Change exceeded forecasts. However, upside potential remains capped by lingering concerns over weak Chinese economic data and its implications for Australian exports. The US Dollar’s soft performance further supported the Aussie.
Outlook:
The Australian Dollar may continue to benefit from positive domestic data and stabilising sentiment towards China. However, markets remain cautious ahead of the Fed’s decision, as any unexpected hawkish signals could pressure the pair.
USDCAD
Summary:
The Canadian Dollar strengthened against the US Dollar after the Bank of Canada (BoC) announced a 50-basis point rate cut to 3.25%, in line with expectations. Despite the rate cut, the BoC’s cautious forward guidance and lack of commitment to further easing limited downside movement in USD/CAD. The pair trades below 1.4150 as of Thursday morning.
Outlook:
The Canadian Dollar’s performance will depend on market reactions to US inflation and labour data. If the Fed confirms a rate cut next week, USD/CAD could see further declines. Domestically, traders will monitor oil price trends, which have a significant impact on the Canadian economy.
USDCHF
Summary:
USD/CHF surged to 0.8900 following a surprise 50 basis point rate cut by the Swiss National Bank (SNB) to 0.5%. This larger-than-expected cut weighed on the Swiss Franc, as markets were initially pricing in a 25-basis point reduction. The SNB emphasised its readiness to maintain accommodative policies amid subdued inflation and economic uncertainty.
Outlook:
The Swiss Franc could face additional pressure if the SNB signals a prolonged dovish stance. Conversely, the pair’s upside may be limited if the Fed confirms dovish measures next week, capping further US Dollar strength.
Final Summary:
Central bank decisions are at the forefront of market activity, with significant attention on the ECB and SNB rate cuts, as well as the Fed’s anticipated policy shift. The US Dollar remains sensitive to inflation and labour data, while key domestic reports, including UK GDP and Australian employment, drive movement in respective currencies. Traders should prepare for heightened volatility as these critical events unfold.