Yesterday brought the first policy decision of 2025 for The Federal Reserve, and despite pressure from Donald Trump last week stating interest rates should be lower, the central bank opted to keep rates on hold. This was mainly due to inflation continuing to remain elevated, whilst also removing themselves from earlier comments about inflation progressing toward their 2 per cent target.
In the background there is also uncertainty over the economic effect from Donald Trump’s pending trade tariffs which are set to be implemented this coming Saturday. In particular, with potential 25% tariffs to be placed on Mexico and Canada, both being two of America’s largest trading partners.
Moving into the afternoon, we also have the first policy decision of 2025 for The European Central Bank. Current expectations point towards a 25 basis-point cut. Over the past few months, the European economy has been facing some struggles, mainly due to weak manufacturing and waning consumer demand. Reducing interest rates by a quarter of a percent would provide some breathing room for consumers, however it would weigh further on the Euro currency pairs. If the 25 basis-point cut is implemented, further forward guidance will be crucial as markets are currently pricing in further cuts in each but one of their meetings within the first half of the year.
At the top of the hour, we have preliminary GDP data due out for The Euro-Zone which should go some way to further supporting the notion that The Bloc is facing difficult times. All of this would put more pressure on The ECB to reduce rates later this afternoon, but to also commit to a more consistent path of interest rate cuts.
GBP/EUR 1.1946 GBP/USD 1.2436 GBP/AED 4.5702
GBP/AUD 1.9964 GBP/CHF 1.1284 GBP/CAD 1.7916
GBP/NZD 2.2011 EUR/USD 1.0400 GBP/ZAR 23.0165