20/01/2025
Written by: Ian Morley
GBPEUR
Summary:
GBP/EUR has seen a moderate decline, trading near 1.2090. UK inflation data met expectations, with the annual CPI rising to 2.6% in November from 2.3% in October, while core inflation grew by 3.5%. Despite this, the data reinforced expectations that the Bank of England (BoE) will hold rates steady at 4.75% during Thursday’s policy meeting. Meanwhile, the Euro remains supported by dovish signals from the European Central Bank (ECB), which has indicated further rate cuts into 2025 as inflation stabilises near the 2% target.
Outlook:
GBP/EUR is likely to remain range bound as traders await UK retail sales data on Friday. The BoE’s tone during Governor Andrew Bailey’s press conference will also be pivotal for the Pound’s direction. On the Euro side, continued concerns over weak economic growth in the Eurozone and potential tariff impacts from the US could weigh on the currency in the medium term.
EURUSD
Summary:
EUR/USD continues to trade sideways above 1.0500 as investors await the Federal Reserve’s monetary policy decision. The Fed is widely expected to cut rates by 25 basis points to 4.25%-4.5%. However, the market focus is on the dot plot projections and Fed Chair Jerome Powell’s guidance regarding future rate cuts. The Euro remains subdued due to expectations of further ECB rate cuts next year and the region’s sluggish growth outlook.
Outlook:
EUR/USD may experience short-term volatility following the Fed’s announcements, particularly if Powell strikes a less dovish tone. Longer-term, the pair could face headwinds as the ECB’s accommodative stance contrasts with the Fed’s potentially gradual easing path. Key support for EUR/USD lies at 1.0450, with resistance around 1.0600.
EUR/CHF
Summary
EUR/CHF remains under pressure following recent monetary policy decisions from both the European Central Bank (ECB) and the Swiss National Bank (SNB). The SNB’s recent rate cut has weakened the Swiss franc, reducing its appeal as a safe-haven currency. This shift could enhance Swiss export competitiveness but also raises inflationary concerns. Meanwhile, the ECB’s cautious rate cuts reflect a focus on addressing sluggish growth, with inflation stabilising closer to its 2% target.
Outlook
EUR/CHF is expected to remain within a narrow range as traders assess central bank policies and their impacts on the euro and franc. Political uncertainties in major Eurozone economies, coupled with concerns about global growth, add complexity to the euro’s outlook. Key support is at 0.93, while resistance is near 0.9445. In the short term, limited volatility suggests a cautious trading environment.
GBPUSD
Summary:
GBP/USD has drifted lower, hovering around 1.2700. UK inflation data, while in line with expectations, failed to boost the Pound. The BoE is anticipated to keep rates unchanged, reflecting a cautious stance amid softening inflation pressures. Meanwhile, the US Dollar remains steady ahead of the Fed’s rate decision, supported by robust retail sales data for November and resilient labour market indicators.
Outlook:
The Pound may come under further pressure if the BoE signals slower policy easing in 2025 compared to market expectations. For the Dollar, any hawkish surprises from the Fed could reinforce near-term support. The pair is expected to trade within the 1.2650–1.2800 range in the short term.
AUDUSD
Summary:
The Australian Dollar remains under pressure, trading near 0.6500, as risk aversion dominates market sentiment ahead of the Fed decision. Speculation around earlier-than-expected rate cuts by the Reserve Bank of Australia (RBA) has further weighed on the Aussie. Additionally, weaker-than-expected Chinese retail sales data and ongoing concerns about US tariffs on Chinese goods have added to the AUD’s struggles.
Outlook:
AUD/USD is likely to stay on the defensive, with further downside risk if the Fed delivers a less dovish outlook. Domestic factors, including evolving RBA expectations and Chinese economic developments, will also play a crucial role in shaping the Aussie’s direction. Immediate support is at 0.6450, with resistance at 0.6550.
Final Summary
Global currency markets are in a holding pattern as traders anticipate key central bank decisions this week, particularly from the Federal Reserve and the Bank of England. While the Fed is expected to cut rates, the focus will be on future guidance, with any divergence in tone likely to drive significant market movements. Meanwhile, softer inflation dynamics across major economies point to a more accommodative policy stance in 2025, setting the stage for cautious trading in the months ahead.