20/01/2025
Written by: Ian Morley
EUR/USD
Summary:
EUR/USD remains under pressure, hovering around the 1.0800 mark. The pair’s movement is influenced by dovish expectations from the European Central Bank (ECB) as multiple officials have hinted at further rate cuts, potentially below the neutral level of 2-2.25%. President Lagarde’s comments about faster-than-expected inflation control haven’t provided enough support for the Euro. Meanwhile, the US Dollar continues to benefit from elevated Treasury yields, keeping EUR/USD within a descending channel.
Outlook:
The outlook remains bearish for EUR/USD, with key support at 1.0750 and a further target at 1.0670 if the downward trend continues. On the upside, the pair needs to break above 1.0830 to signal a rebound. Much will depend on whether the ECB confirms another rate cut and the market’s reaction to upcoming US economic data, especially as the Fed’s rate path remains a focal point for investors.
EUR/GBP
Summary:
EUR/GBP is trading around 0.8310, facing selling pressure as the Euro struggles with expectations of another ECB rate cut in December. Concerns about the Eurozone’s economic outlook have weighed on the currency, while the Pound has also been under pressure due to the likelihood of a 25-basis-point rate cut by the Bank of England (BoE) in November and December. This balance of dovish sentiment from both sides has kept the pair subdued.
Outlook:
The outlook for EUR/GBP leans bearish, especially if the ECB signals more aggressive easing measures in the near future. The pair could test the 0.8300 support level, with potential for further downside if the ECB acts sooner than expected. The BoE’s rate decisions will also be critical, and any divergence in monetary policies could cause volatility.
GBP/USD
Summary:
GBP/USD is attempting to reclaim the 1.3000 level, but ongoing expectations of rate cuts from the BoE have held back the Pound’s momentum. Weak inflation and labour market data in the UK are driving these rate cut forecasts, with 25-basis-point cuts expected in both November and December. The US Dollar remains strong, supported by rising Treasury yields and steady demand due to political uncertainty in the US.
Outlook:
The pair may continue to face headwinds in the near term. GBP/USD could struggle to maintain levels above 1.3000 unless there is a significant dovish shift from the Federal Reserve. The pair may range between 1.2900 and 1.3050 in the short term, with more significant moves likely after clearer guidance from both the BoE and Fed regarding their rate cut paths.
AUD/USD
Summary:
The Australian Dollar is under pressure, trading lower due to increased risk aversion in global markets. The strength of the US Dollar, driven by rising Treasury yields and political uncertainty ahead of the US presidential election, has added to the downside pressure on the Aussie. However, hawkish sentiment from the Reserve Bank of Australia (RBA) and positive employment data have provided some support, helping to limit further declines.
Outlook:
In the near term, AUD/USD may continue to face volatility, especially if risk sentiment deteriorates further. However, the RBA’s hawkish stance and potential improvements in China’s economy could provide a foundation for recovery. The pair may find support near 0.6300, with a potential rebound towards 0.6400 if the global risk-off sentiment eases and the US Dollar stabilizes.
Final Summary:
Across the major currency pairs, central bank policy remains the key driver of market direction. The Euro is weighed down by expectations of further ECB rate cuts, while the Pound faces pressure from anticipated BoE easing. The US Dollar continues to benefit from political uncertainty and strong Treasury yields. With several key central bank meetings on the horizon, including those of the ECB and BoE, upcoming economic data will be crucial in shaping the near-term outlook for these currencies.