20/01/2025
Written by: Ian Morley
GBP/EUR
Summary:
GBP/EUR remains relatively stable, trading around 1.2040, as markets digest PMI data from both economies. Eurozone flash PMIs showed a slower pace of contraction, with the composite index improving to 49.5 from 48.3. The Services PMI unexpectedly entered expansion territory at 51.4, though Manufacturing PMI remained in contraction. The ECB’s recent 25-bps rate cut, bringing the Deposit Facility rate to 3%, has put further pressure on the euro. In the UK, data on industrial production revealed unexpected contraction, weighing on sentiment.
Outlook:
With the ECB signalling a dovish stance and more rate cuts likely in 2025, the euro may face continued downward pressure. Meanwhile, the Bank of England is expected to hold interest rates steady at 4.75% this week. Investors will closely monitor UK inflation and employment data for signs of economic resilience, which could strengthen the pound. GBP/EUR is likely to remain within a narrow range unless significant data surprises emerge.
GBP/USD
Summary:
GBP/USD saw declines last week, touching its weakest level since November near 1.2600 before staging a minor recovery to 1.2650. The pair remains under pressure as the US Dollar benefits from rising Treasury yields and cautious market sentiment. Flash PMI data for both the UK and US will be key drivers this week.
Outlook:
Divergent monetary policy paths are in focus, with the Federal Reserve expected to cut rates by 25 bps while the BoE is anticipated to hold steady. However, market attention will shift to the Fed’s updated economic projections, which may indicate fewer rate cuts in 2025 than previously anticipated. The pound’s performance will depend on UK inflation and labour market data, while the dollar could see renewed strength if the Fed adopts a less dovish tone.
EUR/USD
Summary:
EUR/USD remains under mild pressure, trading near 1.0515. Better-than-expected Eurozone PMI data on Monday provided some support, but the ECB’s dovish outlook continues to weigh on the euro. Meanwhile, the USD is steady below 107.00 on the Dollar Index as investors await the Fed’s policy announcement and economic projections later this week.
Outlook:
The pair may remain range-bound ahead of the Fed’s decision on Wednesday. Any signals of a cautious approach to rate cuts from the Fed could bolster the dollar. In contrast, the ECB’s continued dovishness, with further rate cuts likely in 2025, may limit euro upside. A break below 1.0500 could open the door for further losses, while resistance near 1.0600 will likely cap gains in the near term.
EUR/CHF
Summary:
EUR/CHF trades narrowly around 0.9320 as the euro faces challenges from the ECB’s dovish stance and ongoing eurozone economic concerns. The Swiss Franc benefits from its safe-haven status and the Swiss National Bank’s commitment to price stability.
Outlook:
The pair remains in a tight range, with resistance near 0.9440 and support around 0.9300. The euro could face additional headwinds if eurozone data continues to underperform, while any market volatility may further support the franc. A break below 0.9300 would signal further downside, while sustained movement above 0.9400 could indicate renewed bullish momentum.
AUD/USD
Summary:
AUD/USD trades near 0.6370 after hitting a yearly low last week. A modest pullback in US Treasury yields has provided temporary support, but the Reserve Bank of Australia’s dovish stance and concerns over China’s economic slowdown weigh on the Australian dollar.
Outlook:
The pair is likely to remain under pressure, with the Fed’s policy decision on Wednesday being the key driver for USD movements. Meanwhile, weak Chinese economic data and the RBA’s cautious approach will continue to cap any significant recovery in the Aussie. A break below 0.6350 could signal further downside, while resistance near 0.6400 remains firm.
Final Summary:
This week’s focus will be on central bank decisions, with the Federal Reserve, European Central Bank, and Bank of England all providing critical updates on monetary policy. The US dollar may maintain its strength if the Fed signals a less dovish stance for 2025, while the euro and pound remain under pressure due to dovish policies and mixed economic data. Stay tuned for mid-week developments, as they will set the tone for currency movements heading into year-end.