Foreign Exchange Analysis ~ 18 February 2025

Read via Portal

GB Pound

What happened last week?

↑The Pound saw notable gains last week, reaching a 2025 high of $1.263 against the U.S. Dollar on February 14. This rally was driven by stronger-than expected UK Q4 GDP data, which was revised up to 0.1%. Additionally, a weakening U.S. dollar, due to easing concerns over Trump’s tariff policies, further supported Sterling. However, despite this rally, UK industrial production declined (-1.1%), underscoring lingering economic challengehttps://app.powerbi.com/view?r=eyJrIjoiYjI5Yzg1YjgtMDg2ZC00YTE5LTlhMWQtNzgwNTY0M2EzYTIzIiwidCI6ImY3YmExODI4LTVlMWQtNGM5Ny05OWZiLTk4MzU1NDlmZDgwNiJ9s.

What to watch for in the short-term?

↓ UK retail sales data (Friday) will be closely watched, particularly after last month’s decline. A continued slowdown in consumer spending could reinforce concerns about sluggish domestic demand and weigh on GBP sentiment. Additionally, BoE policymakers are scheduled to speak, and their comments could offer further clarity on the rate outlook. Markets are still pricing in a BoE rate cut in the second half of 2025, but strong wage growth and inflationary pressures could delay this timeline.

What about the coming months?

↓ The UK economy faces stagflation risks, as growth remains weak while inflation is expected to stay above 3% in the coming months. Additionally, potential US tariff measures targeting UK exports could weigh on Sterling’s outlook, adding another layer of risk in the months ahead.

Calendar

Wednesday 7am | Consumer Price Index

Friday 7am | UK Retail Sales Report

US Dollar

What happened last week?

↑  The Dollar Index lost some momentum last week due to changing economic conditions, such as disappointing retail sales data (-0.9%), marking the largest decline in two years, weighed on the greenback. However, the long-term outlook for the dollar remains positive, as stronger-than-expected inflation data pushed back expectations for the Federal Reserve’s first rate cut. The Consumer Price Index (CPI) rose 0.5% MoM (3.0% YoY), while Core CPI came in at 3.3%, both exceeding market forecasts. Producer Price Index (PPI) climbed to 3.5% YoY, reinforcing concerns that inflation could remain persistent

What to watch for in the short-term?

↓ This week’s Federal Reserve Meeting Minutes (Wednesday) will be crucial for gauging policymakers’ views on inflation and the potential rate cut timeline. US jobless claims (Thursday) and S&P Global PMI data (Friday) will provide further insight into the labour market and economic momentum.

What about the coming months?

↓ With rate cuts now expected no earlier than December 2025, the dollar is likely to remain well-supported. However, signs of consumer weakness, slowing retail activity, and higher borrowing costs could weigh on the dollar over time. Additionally, geopolitical and trade policy uncertainty under the Trump administration remains a key risk factor, especially if new tariffs are imposed on major trading partners.

Calendar

Wednesday 7.00pm | Fed Meeting Minutes

Thursday 1.30pm | US Jobless Claims

Euro

What happened last week?

↑ The Euro remained under pressure as Eurozone Q4 GDP was revised slightly higher to 0.1%, signalling stagnant growth environment. German industrial production fell (-1.1%), reinforcing concerns about weakness in Europe’s largest economy. However, despite a EUR/USD recovery towards 1.05, the currency pair remains under pressure, as the US-Eurozone interest rate differential stays near to a 2-year high.

What to watch for in the short-term?

↑ This week, investors will be closely watching the ECB Meeting Minutes (Thursday) for further clues on the central bank’s stance toward monetary easing. Eurozone PMI data (Friday) will also be key, if manufacturing and services activity continue to contract, it could reinforce expectations for an earlier ECB rate cut. Additionally, market attention will be on energy price developments, as volatile energy costs remain a key inflationary risk for the region.

What about the coming months?

↓ The ECB faces a difficult balancing act, with growth stagnating while inflation remains just above target. Markets currently anticipate at least two ECB rate cuts in 2025, but potential US trade restrictions could complicate this outlook. Additionally, any signs of further economic deterioration in Germany could weigh further on the Euro in the coming months.

Calendar

Thursday 12.30pm | ECB Meeting Minutes

Friday 8:15 - 9:00am | Eurozone Manufacturing & Services PMI

Call +44 (0) 203 884 992 to discuss further with an advisor.