Market Insight 17-01-2025

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  • Market Insight 17-01-2025

GBP/EUR


Summary: Pound Sterling weakened against the Euro after UK Retail Sales unexpectedly declined by 0.3% in December, below the expected 0.4% increase. This data reinforces the belief that the Bank of England (BoE) may implement rate cuts in February, with markets now pricing in 50 basis points of cuts for the year. Meanwhile, the Euro remains stable despite dovish commentary from the European Central Bank (ECB), which continues to signal gradual rate cuts to support the weakening economy.

Outlook: GBP/EUR may continue to face downward pressure as expectations for UK rate cuts rise. Focus will shift to UK labour market data due next week for further clues on the BoE’s next moves. Meanwhile, the Euro may see limited volatility until the ECB’s next policy announcement, barring unexpected developments in economic data.

GBP/USD


Summary: The Pound extended its decline against the US Dollar, with the pair dropping toward 1.2150. Disappointing UK Retail Sales data and expectations for aggressive BoE rate cuts weighed heavily on Sterling. The US Dollar held firm despite dovish comments from Fed member Waller, who suggested rate cuts could begin as early as March 2025. Strong Chinese economic data and soft US Retail Sales had limited impact on the USD, as cautious optimism kept demand for the safe-haven currency intact.

Outlook: GBP/USD may see further downside if UK data continues to disappoint, and rate cut expectations rise. For the USD, attention will turn to Monday’s inauguration of President Trump, with potential volatility stemming from announcements on trade and fiscal policies.

EUR/USD


Summary: The Euro struggled to maintain ground against the US Dollar, trading below 1.0300 as dovish bets on the ECB increased. Policymakers signalled further rate cuts to support the economy amid weakening price pressures. Meanwhile, the USD recovered slightly, supported by haven demand and short covering.

Outlook: EUR/USD could remain under pressure in the short term, particularly if ECB commentary continues to point towards gradual easing. For the USD, upcoming US economic data and developments around President Trump’s policies will likely determine the pair’s direction.

USD/JPY


Summary: The US Dollar rebounded against the Japanese Yen, recovering from monthly lows. Stronger Chinese economic data eased concerns about a global slowdown, while the Bank of Japan (BoJ) hinted at a potential rate hike during next week’s meeting. However, the upside for the pair remains limited as investors anticipate a possible shift in BoJ policy.

Outlook: USD/JPY could see increased volatility as markets await the BoJ’s rate decision next week. If the BoJ follows through on rate hikes, the Yen may strengthen, countering the USD’s recent rebound.

AUD/USD


Summary: The Australian Dollar lost ground to the US Dollar despite robust Chinese GDP and industrial production data. Lingering US-China trade concerns weighed on the AUD, while renewed USD demand supported the pair. US Treasury yields remained subdued, reflecting dovish Fed expectations for rate cuts later this year.

Outlook: AUD/USD may struggle to regain momentum unless market sentiment improves significantly. Stronger-than-expected Chinese economic data could provide some support, but US Dollar strength is likely to cap any significant upside for the AUD.

USD/CAD


Summary: The US Dollar regained ground against the Canadian Dollar, with the pair trading above 1.4400. A modest recovery in USD demand offset gains in crude oil prices, which approached $78.50 per barrel. Mixed US economic data had a limited impact on the pair.

Outlook: USD/CAD could remain range-bound, with oil price movements playing a critical role in determining the pair’s direction. Further gains in oil could support the CAD, but sustained USD demand may limit its appreciation.

Final Summary:

Today’s currency markets are dominated by weak UK data, dovish expectations for both the Bank of England and the European Central Bank, and cautious optimism surrounding the US Dollar ahead of major political events. Looking ahead, key developments in economic data and central bank policies will likely shape the trajectory of these currency pairs in the coming weeks.