20/01/2025
Written by: Ian Morley
GBP/EUR
Summary:
GBP/EUR has seen a relatively muted reaction to recent UK labour market data, with the pair holding around the 1.1980 mark. The UK unemployment rate dropped slightly to 4.0%, but mixed employment figures limited any significant GBP movement. Meanwhile, the Euro remains under pressure ahead of key ECB decisions and weaker Eurozone data.
Outlook:
GBP/EUR is likely to be influenced by the upcoming ECB policy announcement, where another interest rate cut is expected. This could lead to further Euro weakness, supporting GBP. However, UK inflation data and ongoing speculation around the Bank of England’s next move will keep GBP volatility high. If the ECB is more dovish than expected, we may see further upward movement in GBP/EUR.
GBP/USD
Summary:
The GBP/USD pair has struggled to hold ground, drifting towards the 1.3000 psychological level due to USD strength. Despite better-than-expected UK jobs data, the strong US Dollar, buoyed by expectations that the Fed will maintain higher interest rates for longer, has dominated market moves.
Outlook:
GBP/USD is expected to remain under pressure as long as the USD retains its strength. The Federal Reserve’s policy path, with reduced expectations for sharp rate cuts, will likely keep the USD in demand. However, upcoming UK inflation data may provide some support for the GBP if figures surprise to the upside. Should USD strength continue, the pair could dip further below 1.3000.
EUR/USD
Summary:
EUR/USD has remained weak, dropping below 1.0900, weighed down by a bullish USD and softer Eurozone data. Ongoing geopolitical risks and expectations of further ECB rate cuts have kept the Euro under significant pressure. US Treasury yields have risen, further supporting USD strength against the Euro.
Outlook:
The EUR/USD pair may continue to face downside risks, especially if the ECB opts for another rate cut, as widely anticipated. The pair’s immediate support lies near the 1.0850 level, and failure to hold above key technical levels could open further declines. Traders will be closely watching the ECB decision and US data releases later in the week for short-term direction.
AUD/USD
Summary:
AUD/USD has continued its downward trend, weighed down by weak Chinese trade data and uncertainty around China’s economic stimulus measures. The risk-sensitive AUD has struggled as USD strength has dominated, pushing the pair lower after a brief recovery.
Outlook:
Further weakness in AUD/USD is likely as long as China’s economic outlook remains uncertain, and USD strength persists. While Australian domestic data has provided little support, any stronger-than-expected signals from the Reserve Bank of Australia or improved Chinese economic conditions could provide relief. However, immediate pressure remains to the downside with the pair potentially testing 0.6700.
Final Summary:
The FX market is being driven by USD strength, as investors adjust their expectations for the Federal Reserve’s interest rate policy. The ECB and Bank of England face challenges, with the Euro likely to remain under pressure as the ECB contemplates further rate cuts. The GBP may find support from upcoming inflation data, but the strength of the US Dollar is likely to keep most major currencies subdued in the near term.