IC Markets Europe Fundamental Forecast | 24 January 2025
What happened in the Asia session?
During the Asian trading session today, the Bank of Japan (BOJ) raised its policy interest rate by 25 basis points to 0.5%, the highest level since 2008. Following the announcement, the Japanese yen experienced volatile trading but ultimately remained stable at around 156 per U.S. dollar. Investors are now focusing on BOJ Governor Kazuo Ueda’s upcoming briefing for insights into future monetary policy directions.
What does it mean for the Europe & US sessions?
The Bank of Japan’s recent 25 basis point rate hike to 0.5%—its highest since 2008—has led to a stronger yen, which may influence European and U.S. forex sessions by increasing demand for yen-denominated assets. This shift could result in a reallocation of investments, potentially affecting currency pairs such as EUR/JPY and USD/JPY.
Additionally, U.S. President Donald Trump’s preference for negotiations over tariffs with China has bolstered market sentiment, leading to a weaker U.S. dollar. This development may impact USD-related currency pairs during the European and U.S. trading sessions
The Dollar Index (DXY)
Key news events today
Flash Manufacturing PMI (2:45 pm GMT)
Flash Services PMI (2:45 pm GMT)
What can we expect from DXY today?
The U.S. Dollar Index (DXY) is expected to be influenced by the upcoming Flash Manufacturing and Services PMIs, scheduled for release at 2:45 PM GMT today. Stronger-than-expected PMI readings could bolster the DXY, reflecting economic resilience, while weaker data may exert downward pressure. Additionally, the U.S. plans to impose a 25% tariff on goods from Mexico and Canada starting February 1, 2025, which may further impact the DXY.
Central Bank Notes:
- The Board of Governors of the Federal Reserve System voted by a majority to lower the Federal Funds Rate target range by 25 basis points to 4.25 to 4.50% on 18 December. Voting against the action was Beth M. Hammack, who preferred to maintain the target range at 4.5 to 4.75%.
- The Committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run and judges that the risks to achieving its employment and inflation goals are roughly in balance.
- The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.
- Recent indicators suggest that economic activity has continued to expand at a solid pace while labour market conditions have generally eased, and the unemployment rate has moved up but remains low.
- Inflation has made further progress toward the Committee’s 2% objective but remains somewhat elevated.
- The Summary of Economic Projections (SEP) now indicates just two rate cuts in 2025 totalling 50 bps, compared to the full percentage point of reductions projected in the previous quarter.
- GDP growth forecasts were revised upward for 2024 (2.5% vs. 2% in the September projection) and 2025 (2.1% vs. 2%), while remaining steady at 2% for 2026. Similarly, PCE inflation projections have been adjusted higher for 2024 (2.4% vs. 2.3%), 2025 (2.5% vs. 2.1%), and 2026 (2.1% vs. 2%).
- In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.
- In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook and would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.
- In addition, the Committee will continue reducing its holdings of Treasury securities, and agency debt and agency mortgage-backed securities. Beginning in June, the Committee slowed the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion.
- The Committee will maintain the monthly redemption cap on agency debt and agency mortgage-backed securities at $35 billion and will reinvest any principal payments in excess of this cap into Treasury securities.
- The next meeting runs from 28 to 29 January 2025.
Next 24 Hours Bias
Weak Bullish
Gold (XAU)
Key news events today
Flash Manufacturing PMI (2:45 pm GMT)
Flash Services PMI (2:45 pm GMT)
What can we expect from Gold today?
As of January 24, 2025, gold prices have retreated from near three-month highs, with spot gold at $2,751.99 per ounce, influenced by a strengthening U.S. dollar and anticipation of President Donald Trump’s tariff policies.
Factors Influencing Gold Prices Today:
• U.S. Dollar Strength: A stronger dollar makes gold more expensive for holders of other currencies, typically applying downward pressure on gold prices.
• Upcoming Economic Data: Investors are monitoring U.S. Flash Manufacturing and Services PMIs, scheduled for release at 2:45 PM GMT. Positive data could bolster the dollar, potentially leading to a decline in gold prices.
• Geopolitical Developments: President Trump’s proposed 25% tariffs on imports from Mexico and Canada, effective February 1, 2025, may increase market uncertainty, enhancing gold’s appeal as a safe-haven asset.
Next 24 Hours Bias
Weak Bearish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
the Australian dollar is trading at approximately 0.6272, with no major economic news expected today; its movements will likely be influenced by external factors such as U.S. economic data.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.35% on 10 December, marking the ninth consecutive pause.
- Inflation has fallen substantially since the peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance. However, measures of underlying inflation are around 3.5%, which is still some way from the 2.5% midpoint of the inflation target.
- The most recent forecasts published in the November Statement on Monetary Policy (SMP) do not see inflation returning sustainably to the midpoint of the target until 2026 but the Board is gaining some confidence that inflationary pressures are declining in line with these recent forecasts with risks remaining in place.
- Growth in output has been weak as the economy grew by only 0.8% in the September quarter over the past year. Outside of the COVID-19 pandemic, this was the slowest pace of growth since the early 1990s.
- A range of indicators suggest that labour market conditions remain tight; while those conditions have been easing gradually, some indicators have recently stabilised. The unemployment rate was 4.1 per cent in October, up from 3.5 per cent in late 2022.
- Wage pressures have eased more than expected in the November SMP. The rate of wage growth as measured by the Wage Price Index was 3.5% over the year to the September quarter, a step down from the previous quarter, but labour productivity growth remains weak.
- Sustainably returning inflation to target within a reasonable timeframe remains the Board’s highest priority. This is consistent with the RBA’s mandate for price stability and full employment. To date, longer-term inflation expectations have been consistent with the inflation target and it is important that this remains the case.
- The Board will continue to rely upon the data and the evolving assessment of risks to guide its decisions, paying close attention to developments in the global economy and financial markets, trends in domestic demand, and the outlook for inflation and the labour market.
- The next meeting is on 18 February 2025.
Next 24 Hours Bias
Weak Bearish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
the New Zealand dollar (NZD) is trading at approximately 0.5665 against the U.S. dollar.
In the absence of major economic news today, the NZD’s movements are expected to be influenced by external factors, particularly U.S. economic data and global market sentiment.
Central Bank Notes:
- The Monetary Policy Committee (MPC) agreed to reduce the Official Cash Rate (OCR) by 50 basis points bringing it down to 4.25% on 27 November, marking the third consecutive rate cut.
- The Committee assessed that annual consumer price inflation has declined and is now close to the midpoint of the MPC’s 1 to 3% target band; inflation expectations are also close to target and core inflation is converging to the midpoint.
- Economic activity remains subdued and output continues to be below its potential. With excess productive capacity in the economy, inflation pressures have eased. If economic conditions continue to evolve as projected, the Committee expects to be able to lower the OCR further early next year.
- Domestic economic activity remains below trend, as a result of weakness in demand for durable goods consumption and investment. This has been reflected in falling activity in interest rate sensitive sectors such as construction, manufacturing, and retail trade. In contrast, some service sectors have continued to grow.
- Consistent with feedback from business visits, high-frequency indicators suggest that the economy has stabilised in recent months. Economic growth is expected to recover from the December quarter, in part due to lower interest rates, but there is uncertainty around the exact timing and speed of the recovery.
- Wage growth is slowing, consistent with inflation returning to the target midpoint while employment levels and job vacancies have declined, reflecting subdued economic activity; unemployment is expected to continue rising in the near term.
- Expectations of future inflation, the pricing intentions of firms, and spare productive capacity are consistent with the inflation target being sustainably achieved, providing the context and the confidence for the Committee to ease monetary policy restraint further.
- The next meeting is on 19 February 2025.
Next 24 Hours Bias
Weak Bearish
The Japanese Yen (JPY)
Key news events today
BOJ Press Conference (Tentative)
BOJ Policy Rate (Tentative)
Monetary Policy Statement (Tentative)
BOJ Outlook Report (Tentative)
What can we expect from JPY today?
The Bank of Japan (BOJ) raised its interest rate by 25bps to 0.5%, the highest since 2008, causing JPY volatility but keeping it stable at around 156 per USD. The rate hike reflects confidence in sustained inflation near 2%, with traders now focusing on Governor Ueda’s briefing for policy direction.
Further tightening signals could strengthen JPY, while uncertainty may lead to market volatility. Investors should monitor BOJ statements and global economic developments for potential shifts in JPY valuation throughout the day.
Central Bank Notes:
- The Policy Board of the Bank of Japan decided on 19 December, by an 8-1 majority vote, to set the following guidelines for money market operations for the inter-meeting period:
- The Bank will encourage the uncollateralized overnight call rate to remain at around 0.25%.
- The Bank will embark on a plan to reduce the amount of its monthly outright purchases of JGBs so that it will be about 3 trillion yen in January-March 2026; the amount will be cut down by about 400 billion yen each calendar quarter in principle.
- Japan’s economy has recovered moderately, although some weakness has been seen in part. Exports and industrial production have been more or less flat while corporate profits have been on an improving trend and business sentiment has stayed at a favourable level.
- The employment and income situation has improved moderately while private consumption has been on a moderately increasing trend despite the impact of price rises and other factors.
- On the price front, the year-on-year rate of increase in the consumer price index (CPI, all items less fresh food) has been in the range of 2.0-2.5% recently, as services prices have continued to rise moderately, reflecting factors such as wage increases, although the effects of a passthrough to consumer prices of cost increases led by the past rise in import prices have waned; inflation expectations have risen moderately.
- With regard to the CPI (all items less fresh food), while the effects of the pass-through to consumer prices of cost increases led by the past rise in import prices are expected to wane, underlying CPI inflation is expected to increase gradually, since it is projected that the output gap will improve and that medium- to long-term inflation expectations will rise with a virtuous cycle between wages and prices continuing to intensify.
- Japan’s economy is likely to keep growing at a pace above its potential growth rate, with overseas economies continuing to grow moderately and as a virtuous cycle from income to spending gradually intensifies against the background of factors such as accommodative financial conditions.
- The next meeting is on 24 January 2025.
Next 24 Hours Bias
Weak Bullish
The Euro (EUR)
Key news events today
French Flash Manufacturing PMI (8:15 am GMT)
French Flash Services PMI (8:15 am GMT)
German Flash Manufacturing PMI (8:30 am GMT)
German Flash Services PMI (8:30 am GMT)
What can we expect from EUR today?
As of January 24, 2025, the euro (EUR) is trading near $1.04, approaching parity with the U.S. dollar. This decline is attributed to a strengthening dollar, driven by robust U.S. economic data and expectations of pro-growth policies under President Donald Trump’s administration.
In contrast, the eurozone faces economic challenges, including weakened manufacturing sectors and policy uncertainties in major economies like Germany and France. The International Monetary Fund has revised its 2025 growth forecast for the euro area downward, citing these concerns. Additionally, the European Central Bank is anticipated to implement interest rate cuts to counteract potential adverse effects on eurozone growth, especially amid easing fears of U.S. trade tariffs.
Central Bank Notes:
- The Governing Council reduced the three key ECB interest rates by 25 basis points on 12 December to mark the third successive rate cut.
- Accordingly, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be decreased to 3.15%, 3.40% and 3.00% respectively.
- The disinflation process is well on track and most measures of underlying inflation suggest that inflation will settle at around the Governing Council’s 2% medium-term target on a sustained basis.
- Staff see headline inflation averaging 2.4% in 2024, 2.1% in 2025, 1.9% in 2026 and 2.1% in 2027 when the expanded EU Emissions Trading System becomes operational. For inflation excluding energy and food, staff project an average of 2.9% in 2024, 2.3% in 2025 and 1.9% in both 2026 and 2027.
- Staff now expect a slower economic recovery than in the September projections. Although growth picked up in the third quarter of this year, survey indicators suggest it has slowed in the current quarter – the economy is expected to grow by 0.7% in 2024, 1.1% in 2025, 1.4% in 2026 and 1.3% in 2027
- The Eurosystem no longer reinvests all of the principal payments from maturing securities purchased under the pandemic emergency purchase programme (PEPP), reducing the PEPP portfolio by €7.5 billion per month on average and the Governing Council intends to discontinue reinvestments under the PEPP at the end of 2024.
- The Governing Council stands ready to adjust all of its instruments within its mandate to ensure that inflation stabilises sustainably at its 2% target over the medium term and to preserve the smooth functioning of monetary policy transmission.
- The next meeting is on 30 January 2025.
Next 24 Hours Bias
Weak Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
The USD/CHF pair is trading near 0.9038-0.9110, with no major news expected today. Market sentiment and technical factors will drive movement, with indicators showing a bearish bias.
Central Bank Notes:
- The SNB eased monetary policy by lowering its key policy rate by 50 basis points, going from 1.00% to 0.50% on 12 December, marking the fourth consecutive reduction.
- Underlying inflationary pressure has decreased again this quarter.
- Inflation in the period since the last monetary policy assessment has again been lower than expected as it decreased from 1.1% in August to 0.7% in November; both goods and services contributed to this decline.
- In the shorter term, the new conditional inflation forecast is below that of September: 1.1% for 2024, 0.3% for 2025 and 0.8% for 2026, based on the assumption that the SNB policy rate is 0.5% over the entire forecast horizon.
- GDP growth in Switzerland was only modest in the third quarter of 2024 with growth in the services sector again somewhat stronger, while value added in manufacturing declined.
- There was a further slight increase in unemployment, and employment growth was subdued while the utilisation of overall production capacity was
- normal.
- The SNB anticipates GDP growth of around 1% this year while currently expecting growth of between 1.0% and 1.5% for 2025.
- The SNB will continue to monitor the situation closely and will adjust its monetary policy if necessary to ensure inflation remains within the range consistent with price stability over the medium term.
- The next meeting is on 20 March 2025.
Next 24 Hours Bias
Weak Bearish
The Pound (GBP)
Key news events today
Flash Manufacturing PMI (9:30 am GMT)
Flash Services PMI (9:30 am GMT)
What can we expect from GBP today?
The British pound (GBP) is trading at approximately $1.24 against the U.S. dollar. The upcoming release of the UK’s Flash Manufacturing and Services PMIs is anticipated to influence the GBP/USD pair.
The Manufacturing PMI is projected to remain in contraction territory, with a forecast of 46.9, slightly below the previous 47.0. Conversely, the Services PMI is expected to show modest expansion, with a forecast of 50.8, down from the prior 51.1. If these PMIs meet or exceed expectations, the GBP may strengthen; however, weaker-than-expected data could exert downward pressure
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 6 to 3 to maintain the Bank Rate at 4.75% on 19 December 2024 – three members preferred to reduce the Bank rate by 25 basis points, bringing it down to 4.50%.
- The MPC also voted unanimously to reduce the stock of UK government bond purchases held for monetary policy purposes and financed by the issuance of central bank reserves, by £100B over the next 12 months to a total of £558B, starting in October 2024. On 18 December 2024, the stock of UK government bonds held for monetary policy purposes was £655B.
- Twelve-month CPI inflation had increased to 2.6% in November from 1.7% in September, slightly higher than previous expectations while services consumer price inflation had remained elevated, at 5.0%, while core goods price inflation had risen to 1.1%.
- Headline CPI inflation was slightly higher than previous expectations, owing in large part to stronger inflation in core goods and food, and is expected to continue to rise slightly in the near term.
- Most indicators of UK near-term activity have declined with Bank staff expecting GDP growth to be weaker at the end of the year than originally projected in the November Monetary Policy Report.
- Bank staff now expected zero GDP growth in 2024 Q4, weaker than the 0.3% that had been incorporated in the November Report, broadly consistent with the latest combined steer from business surveys and the available official data.
- The Committee now judges that the labour market is broadly in balance as annual private sector regular average weekly earnings growth picked up quite sharply in the three months to October but there remains significant uncertainty around developments in the labour market.
- Monetary policy has been guided by the need to squeeze remaining inflationary pressures out of the economy to achieve the 2% target both in a timely manner and on a lasting basis. Over recent quarters there has been progress in disinflation, particularly as previous external shocks have abated, although remaining domestic inflationary pressures are resolving more slowly.
- The Committee continues to monitor closely the risks of inflation persistence and will assess the extent to which the evolving evidence is consistent with more constrained supply, which could sustain inflationary pressures, or with weaker demand, which could lead to the emergence of spare capacity in the economy and push down inflation; a gradual approach to removing monetary policy restraint remains appropriate.
- Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further and the Committee will decide the appropriate degree of monetary policy restrictiveness at each meeting.
- The next meeting is on 6 February 2025.
Next 24 Hours Bias
Weak Bullish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
The USD/CAD pair is trading near 1.4359, with no major news expected today. Technical indicators suggest a bearish outlook, with resistance levels limiting upward movement. Market sentiment, oil prices, and unexpected geopolitical developments could influence price action
Central Bank Notes:
- The Bank of Canada reduced its target for the overnight rate by 50 basis points bringing it down to 3.25% while continuing its policy of balance sheet normalization on 11 December; this marked the fifth consecutive meeting where rates were reduced.
- Canada’s economy grew by 1% in the third quarter, somewhat below the Bank’s October projection, and the fourth quarter also looks weaker than projected. Third-quarter GDP growth was pulled down by business investment, inventories and exports.
- The unemployment rate rose to 6.8% in November as employment continued to grow more slowly than the labour force while wage growth showed some signs of easing, but remains elevated relative to productivity.
- Headline CPI has declined significantly from 2.7% in June to 1.6% in September while shelter costs inflation remains elevated but has begun to ease; the preferred measures of core inflation are now below 2.5%.
- CPI inflation has been about 2% since the summer and is expected to average close to the 2% target over the next couple of years. Since October, the upward pressure on inflation from shelter and the downward pressure from goods prices have both moderated as expected.
- Looking ahead, the GST holiday will temporarily lower inflation but that will be unwound once the GST break ends. In addition, the possibility the incoming US administration will impose new tariffs on Canadian exports to the United States has increased uncertainty and clouded the economic outlook.
- With inflation around 2%, the economy in excess supply, and recent indicators tilted towards softer growth than projected, the Governing Council decided to reduce the policy rate by a further 50 basis points to support growth and keep inflation close to the middle of the 1-3% target range.
- The Governing Council has reduced the policy rate substantially since June and going forward, they will be evaluating the need for further reductions in the policy rate one decision at a time.
- The Bank is committed to maintaining price stability for Canadians by keeping inflation close to the 2% target.
- The next meeting is on 29 January 2025.
Next 24 Hours Bias
Medium Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
In the absence of major news today, oil prices are expected to remain relatively stable, influenced by routine market factors such as supply-demand dynamics and investor sentiment. Analysts forecast Brent crude to average around $74 per barrel in 2025
Next 24 Hours Bias
Weak Bullish
