20/01/2025
Written by: Ian Morley
GBP/EUR
Summary:
The Bank of England (BoE) is expected to leave interest rates unchanged at 4.75% following its final meeting of 2024. UK inflation accelerated in November, with the Consumer Price Index rising to 2.6% year-on-year, from 2.3% in October. Core inflation also ticked higher to 3.5%. However, these figures were broadly in line with expectations, reinforcing the BoE’s cautious approach. Meanwhile, the Euro remains under pressure as the European Central Bank (ECB) continues its policy-easing trajectory, with further rate cuts projected for 2025.
Outlook:
The Pound could see limited volatility unless surprises emerge in the BoE’s decision or voting split. Markets anticipate no immediate change in the GBP/EUR trend. However, persistent inflation in the UK could lend some support to the Pound, while expectations of additional ECB rate cuts might weigh on the Euro into 2025.
GBP/USD
Summary:
The Federal Reserve cut its benchmark interest rate by 25 basis points to 4.25%-4.50%, its lowest level in two years, while signalling a cautious approach to further cuts. This hawkish stance caused the US Dollar to strengthen significantly, pushing GBP/USD to a fresh December low of 1.2560 before a modest recovery to 1.2600. In the UK, the BoE is expected to hold rates steady, and Governor Bailey has hinted at gradual rate cuts in 2025, depending on inflation trends.
Outlook:
The Pound faces downside risks against the Dollar as the Fed’s hawkish projections could support further Dollar strength. A breach of 1.2560 may open the path to deeper losses, while resistance levels at 1.2698 and 1.2810 could cap any rebounds. GBP/USD will likely remain sensitive to broader risk sentiment and US economic data in the near term.
EUR/USD
Summary:
EUR/USD rebounded slightly to 1.0400 on Thursday after sharp losses earlier in the week driven by the Fed’s hawkish tone. The pair remains under pressure as the ECB continues its dovish policy, with policymakers projecting at least four 25-basis-point rate cuts in 2025. Meanwhile, strong US economic data and the Fed’s upward revision of inflation forecasts for 2025 continue to bolster the Dollar.
Outlook:
EUR/USD could face further downside if the Dollar’s rally persists. Key support is at 1.0350, with a breach exposing 1.0250. On the upside, resistance near 1.0500 may limit gains. The pair’s trajectory will be influenced by upcoming US economic data and ECB rhetoric regarding its easing policy.
EUR/CHF
Summary:
The Euro has seen modest support against the Swiss Franc, trading near 0.9350, as markets digest dovish signals from the ECB. Meanwhile, the Swiss National Bank (SNB) has maintained its hawkish stance, while monitoring inflation closely. The relative economic stability in Switzerland continues to underpin the Franc.
Outlook:
EUR/CHF may remain range-bound in the short term, with the Euro’s performance tied to expectations of further ECB rate cuts in 2025. The pair’s movement will likely depend on economic indicators from both regions and central bank commentary.
AUD/USD
Summary:
The Australian Dollar recovered slightly following the release of stronger-than-expected domestic inflation expectations, which rose to 4.2% in December. However, the Fed’s hawkish rate cut and ongoing concerns about China’s economic slowdown—Australia’s largest trading partner—continue to weigh on the AUD/USD pair. The pair is trading near 0.6220, close to the lower boundary of its descending channel.
Outlook:
The Aussie faces downward pressure, with key support near 0.6140 and resistance around 0.6320. Any recovery could be limited by weak global risk sentiment and expectations of a dovish Reserve Bank of Australia (RBA). The pair may test lower levels if US data reinforces the Fed’s cautious stance.
Final Summary
This week has been marked by diverging central bank policies. The Fed’s hawkish tone has supported the Dollar, driving strength across most major pairs. In contrast, the BoE and ECB are maintaining cautious stances, focusing on inflation risks and gradual rate adjustments. Key themes to watch include the BoE’s rate decision, US economic data, and any shifts in ECB rhetoric. Markets are likely to remain volatile as 2024 draws to a close, setting the stage for significant currency movements in early 2025.