GB Pound
What happened last week?
Sterling dropped sharply after the Bank of England (BoE) cut rates by 25bps to 4.5%, citing weaker growth prospects. The BoE also downgraded its 2025 growth forecast from 1.5% to 0.75%, pointing to a slowdown in business confidence and a faster pace of job cuts, reportedly the most rapid since 2009 (outside pandemic peaks). Although inflation eased slightly in December, cost pressures remain pronounced due to persistent wage growth and higher minimum wages.
What to watch for in the short-term?
With the UK’s Q4 GDP and labour market data due on Friday, Sterling is on a fragile footing. Any further signs of weakness could reinforce market expectations for additional BoE rate cuts this year. Meanwhile, broader concerns about global trade policy (particularly Trump’s newly imposed or threatened tariffs) may exacerbate inflationary pressures in the UK.
What about the coming months?
Markets continue to price in further rate cuts through 2025 (currently between 50 75bp). The risk for the pound over the medium-term centres on Labours ability to materialise their promises of high growth with the market and the central bank cutting their growth forecasts over 2025.
Calendar
Thursday 7:00am | Q4 GDP & Labour Market Data
US Dollar
What happened last week?
The dollar maintained its strength last week despite nonfarm payrolls missing forecasts (143k Vs 170k expected). Elsewhere in the jobs data, unemployment dipped to 4.0% and wage growth rose to 4.1% YoY, reinforcing the narrative of ongoing inflationary pressures. On the trade front, President Trump struck deals to pause tariffs on Canada and Mexico whilst outlining plans to impose new 25% tariffs on Steel and Aluminium imports.
What to watch for in the short-term?
Eyes turn to the US CPI release on February 12 and Fed Chair Powell’s congressional testimony on February 11–12, both of which could steer USD sentiment. A higher-than-expected CPI figure or hawkish commentary on inflation risks might extend dollar support.
What about the coming months?
While markets initially priced in a series of Fed rate cuts in 2025, persistent core inflation and strong employment data are tempering expectations. If consumer spending remains solid and the labour market retains momentum, the Fed may push back easing measures, keeping the dollar elevated.
Calendar
Tuesday/Wednesday 3:00pm | Fed's Chair Powell testifies
Wednesday 1:30pm | US CPI
Euro
What happened last week?
Last week, Eurozone inflation edged up to 2.5% YoY while German industrial production fell 2.4% in December, underscoring broader manufacturing woes. While German factory orders rose 6.9% on a monthly basis, YoY levels were still below 2023 figures. This mixed data backdrop left EUR/USD drifting lower.
What to watch for in the short-term?
Investors will focus on the Eurozone’s Q4 GDP data and German inflation numbers next Friday. Any downside surprise could bolster views that the ECB will move forward with rate cuts by mid-2025. Additionally, trade tensions emanating from the US could pose further headwinds if tariffs escalate, potentially dampening the Eurozone’s export-driven sectors.
What about the coming months?
Currently markets are pricing 87bp of rate cuts in 2025. While any unexpected uptick in economic data or a less accommodative ECB rhetoric could provide short-term support, the euro’s medium-term outlook remains tied to the region’s ability to move past current stagnation and trade uncertainties.
Calendar
Friday 10am | Eurozone Q4 GDP
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