IC Markets Europe Fundamental Forecast | 13 March 2025
What happened in the Asia session?
The Melbourne Institute (MI) released its findings on consumer inflation expectations for March where expectations eased to 3.6%, falling from 4.6% in the previous month. Despite inflationary pressures dissipating in Australia, the Aussie has received a strong boost in recent weeks due to significant weakness in the U.S. dollar. Meanwhile, the dollar index (DXY) stabilized around 103.30 by midday in Asia while spot prices for gold look to make another attempt to surpass the intraday record high of $2,956.29/oz.
What does it mean for the Europe & US sessions?
Industrial activity in the Euro Area declined 1.1% MoM in December 2024 as categories such as capital goods; intermediate goods; and durable consumer goods led the downturn. However, with the recent announcement of fiscal policy actions to be taken by the EU, particularly Germany, the industrial and manufacturing base is now expected to see a resurgence in output. Production is now expected to rise 0.5% MoM in January and the upward momentum will likely keep the euro buoyed throughout the first quarter of this year.
The Dollar Index (DXY)
Key news events today
PPI (12:30 pm GMT)
Unemployment Claims (12:30 pm GMT)
What can we expect from DXY today?
The Producer Price Index (PPI) – which measures wholesale inflation – has accelerated since the final quarter of last year. However, headline PPI is now expected to ease from an annual rate of 3.5% in January to 3.3% in February. Should wholesale prices also point to slower price gains, they are likely to function as an additional catalyst to soothe market nerves. Meanwhile, unemployment claims are expected to remain somewhat steady with a forecast of 226k; a result that would reflect a steady labour market.
Central Bank Notes:
- The Board of Governors of the Federal Reserve System voted unanimously to maintain the Federal Funds Rate in a target range of 4.25 to 4.50% on 29 January.
- 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 the unemployment rate has stabilized at a low level in recent months, and labour market conditions remain solid. However, inflation remains somewhat elevated.
- December’s 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 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.
- The Committee will roll over at auction the amount of principal payments from the Federal Reserve’s holdings of Treasury securities maturing in each calendar month that exceeds a cap of $25 billion per month and redeem Treasury coupon securities up to this monthly cap and Treasury bills to the extent that coupon principal payments are less than the monthly cap.
- In addition, the Committee will reinvest the amount of principal payments from the Federal Reserve’s holdings of agency debt and agency mortgage-backed securities (MBS) received in each calendar month that exceeds a cap of $35 billion per month into Treasury securities to roughly match the maturity composition of Treasury securities outstanding.
- The next meeting runs from 18 to 19 March 2025.
Next 24 Hours Bias
Weak Bearish
Gold (XAU)
Key news events today
PPI (12:30 pm GMT)
Unemployment Claims (12:30 pm GMT)
What can we expect from Gold today?
The Producer Price Index (PPI) – which measures wholesale inflation – has accelerated since the final quarter of last year. However, headline PPI is now expected to ease from an annual rate of 3.5% in January to 3.3% in February. Should wholesale prices also point to slower price gains, they are likely to function as an additional catalyst to soothe market nerves. Meanwhile, unemployment claims are expected to remain somewhat steady with a forecast of 226k; a result that would reflect a steady labour market.
Next 24 Hours Bias
Weak Bullish
The Australian Dollar (AUD)
Key news events today
MI Inflation Expectations (12:00 am GMT)
What can we expect from AUD today?
The Melbourne Institute (MI) released its findings on consumer inflation expectations for March where expectations eased to 3.6%, falling from 4.6% in the previous month. Despite inflationary pressures dissipating in Australia, the Aussie has received a strong boost in recent weeks due to significant weakness in the U.S. dollar.
Central Bank Notes:
- The RBA reduced the cash rate by 25 basis points to bring it down to 4.10% on 18 February, marking the first rate cut since November 2020.
- Financial conditions are restrictive, which is weighing on demand and is helping to bring down underlying inflation; growth in private demand has been subdued.
- Underlying inflation has moderated over the past three quarters with trimmed mean inflation easing to 3.2% over 2024 and it is expected to reach the 2–3% target range in early 2025, which is sooner than expected at the time of the November Statement.
- The unemployment rate declined a little in late 2024 to 4% with much of the strength in the labour market underpinned by strong employment growth, which has also bolstered household incomes.
- The announcement of tariffs between the United States and other major economies poses challenges to the global outlook but the scale and incidence of the tariffs and their effects remain highly uncertain – which may itself delay some investment until the outlook becomes clearer.
- Economic activity strengthened in China but growth there is still facing structural headwinds while domestic economic growth is forecast to pick up and the labour market is forecast to remain tight.
- If the cash rate follows the market path, underlying inflation is projected to be a little above 2.5% over most of the forecast period. The anticipated recovery of GDP growth and lingering tightness in labour market conditions are expected to sustain some upward pressure on inflation.
- 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.
- 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 1 April 2025.
Next 24 Hours Bias
Weak Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
A significantly weaker greenback continued to keep the Kiwi elevated on Wednesday – this currency pair edged higher toward 0.5750 as Asian markets came online on Thursday.
Central Bank Notes:
- The Monetary Policy Committee (MPC) agreed to reduce the Official Cash Rate (OCR) by 50 basis points bringing it down to 3.75% on 19 February, marking the fourth consecutive rate cut.
- The Committee assessed that annual consumer price inflation remains near the midpoint of the MPC’s 1 to 3% target band; inflation expectations are at target and core inflation continues to fall towards the target mid-point.
- Economic activity in New Zealand remains subdued and with spare productive capacity, domestic inflation pressures continue to ease. Price and wage-setting behaviours are adapting to a low-inflation environment while the price of imports has fallen, also contributing to lower headline inflation.
- Economic growth is expected to recover during 2025 as lower interest rates will encourage spending, although elevated global economic uncertainty is expected to weigh on business investment decisions. Higher prices for some key commodities and a lower exchange rate will increase export revenues and employment growth is expected to pick up in the second half of the year as the domestic economy recovers.
- Global economic growth is expected to remain subdued in the near term as geopolitics, including uncertainty about trade barriers, is likely to weaken global growth. Global economic activity is also likely to remain fragile over the medium term given increasing geoeconomic fragmentation.
- Consumer price inflation is expected to be volatile in the near term, due to a lower exchange rate and higher petrol prices. Nevertheless, the Committee is well placed to maintain price stability over the medium term.
- The economic outlook remains consistent with inflation remaining in the band over the medium term, giving the Committee confidence to continue lowering the OCR. If economic conditions continue to evolve as projected, the Committee has scope to lower the OCR further through 2025.
- The next meeting is on 9 April 2025.
Next 24 Hours Bias
Weak Bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
Demand for the yen waned noticeably over the past couple of days with USD/JPY rising nearly 1.4% at its highest point. This currency pair hit an overnight high of 149.19 on Wednesday before retreating sharply lower – it was hovering around 148.20 at the beginning of Thursday’s Asia session.
Central Bank Notes:
- The Policy Board of the Bank of Japan decided on 24 January, 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 0.5%.
- 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 at around 3% recently, as services prices have continued to rise moderately, reflecting factors such as wage increases, although the effects of a pass-through to consumer prices of cost increases led by the past rise in import prices have waned.
- Inflation expectations have risen moderately while underlying CPI inflation has been increasing gradually toward the price stability target of 2%. With wages continuing to rise, there has been an increase in moves to reflect higher costs, such as increased personnel expenses and distribution costs, in selling prices.
- 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 19 March 2025.
Next 24 Hours Bias
Weak Bullish
The Euro (EUR)
Key news events today
Industrial Production (10:00 am GMT)
What can we expect from EUR today?
Industrial activity in the Euro Area declined 1.1% MoM in December 2024 as categories such as capital goods; intermediate goods; and durable consumer goods led the downturn. However, with the recent announcement of fiscal policy actions to be taken by the EU, particularly Germany, the industrial and manufacturing base is now expected to see a resurgence in output. Production is now expected to rise 0.5% MoM in January and the upward momentum will likely keep the euro buoyed throughout the first quarter of this year.
Central Bank Notes:
- The Governing Council reduced the three key ECB interest rates by 25 basis points on 6 March to mark the fifth 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 2.65%, 2.90% and 2.50% respectively.
- The Council acknowledged that monetary policy was becoming meaningfully less restrictive, easing borrowing costs for businesses and households with inflation projected to average 2.3% in 2025, 1.9% in 2026, and 2.0% in 2027, while core inflation also neared the 2% target.
- Although domestic inflation remains elevated due to delayed wage and price adjustments, wage growth is moderating.
- Economic growth forecasts were revised downward to 0.9% for 2025 and 1.2% for 2026, reflecting weak exports and investment.
- The asset purchase programme (APP) and pandemic emergency purchase programme (PEPP) portfolios are declining at a measured and predictable pace, as the Eurosystem no longer reinvests the principal payments from maturing securities.
- The ECB remains data-dependent and will adjust its policy as needed to ensure inflation stabilizes around its 2% medium-term target without committing to a specific rate path.
- The next meeting is on 17 April 2025.
Next 24 Hours Bias
Weak Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
After appreciating strongly last week, demand for the franc waned as USD/CHF stabilized around 0.8800 on Monday before climbing higher. This currency pair hit an overnight high of 0.8852 on Wednesday before falling sharply, briefly dipping under the threshold of 0.8800. Demand for the franc appears to be returning and the downward momentum could pick up once more in the second half of this week.
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
No major news events.
What can we expect from GBP today?
After hitting a high of 1.2987 on Wednesday, Cable took a breather to pull back toward 1.2960. This currency pair remained elevated as Asian markets came online, floating around 1.2990.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 7 to 2 to reduce the Bank Rate by 25 basis points (bps) to bring it down to 4.50% on 6 February 2025, while two members preferred to reduce it by 50 bps.
- 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.
- CPI inflation was 2.5% in 2024 Q4 as domestic inflationary pressures moderated but remained somewhat elevated while some indicators eased more slowly than expected. Higher global energy costs and regulated price changes are expected to push up headline CPI inflation to 3.7% in 2025 Q3, even as underlying domestic inflationary pressures are expected to wane further.
- While CPI inflation is expected to fall back to around the 2% target thereafter, the Committee will pay close attention to any consequent signs of more lasting inflationary pressures.
- GDP growth has been weaker than expected at the time of the November Monetary Policy Report, and indicators of business and consumer confidence have declined – GDP growth is expected to pick up from the middle of this year.
- The labour market has continued to ease and is judged to be broadly in balance. Productivity growth has been weaker than previously estimated, and the Committee judges that growth in the supply capacity of the economy has weakened.
- Based on the Committee’s evolving view of the medium-term outlook for inflation, a gradual and careful approach to the further withdrawal of monetary policy restraint is appropriate and it will continue to monitor closely the risks of inflation persistence and what the evolving evidence may reveal about the balance between aggregate supply and demand in the economy.
- 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 8 May 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?
As widely anticipated, the Bank of Canada (BoC) moved ahead with its seventh successive rate cut by reducing the Overnight Rate by 25 basis points (bps) to bring it down to 2.75%. The Governing Council noted that the Canadian economy grew more than expected in the fourth quarter of last year, spurred by past rate cuts. However, growth is now expected to slow at the turn of the year due to increasing trade conflict with the US, noting that the continuously changing tariff threats hurt consumer confidence and investment expectations. In the meantime, the end of tax credits is expected to drive incoming inflation gauges to accelerate toward 2.5% after headline inflation remained below the 2.0% target for multiple months. The Loonie initially weakened post-announcement as USD/CAD rose as high as 1.4430 before retreating lower by the end of the U.S. session. This currency pair stabilized around 1.4360 at the beginning of Thursday’s Asia session and was seen edging higher.
Central Bank Notes:
- The Bank of Canada reduced its target for the overnight rate by 25 basis points bringing it down to 2.75% on 12 March; this marked the seventh consecutive meeting where rates were reduced.
- The bank announced its plan to complete the normalization of its balance sheet, ending quantitative tightening, and will restart asset purchases in early March, beginning gradually so that its balance sheet stabilizes and then grows modestly, in line with growth in the economy.
- The Governing Council noted that the economy grew more than expected in the fourth quarter of last year, spurred by past rate cuts but growth is now expected to slow at the turn of the year due to increasing trade conflict with the United States.
- Employment growth strengthened in November through January and the unemployment rate declined to 6.6%. In February, job growth stalled. While past interest rate cuts have boosted demand for labour in recent months, there are warning signs that heightened trade tensions could disrupt the recovery in the jobs market. Meanwhile, wage growth has shown signs of moderation.
- Inflation remains close to the 2% target. The temporary suspension of the GST/HST lowered some consumer prices, but January’s CPI was slightly firmer than expected at 1.9%. Inflation is expected to increase to about 2½% in March with the end of the tax break. The Bank’s preferred measures of core inflation remain above 2%, mainly because of the persistence of shelter price inflation. Short-term inflation expectations have risen in light of fears about the impact of tariffs on prices.
- While economic growth has come in stronger than expected, the pervasive uncertainty created by continuously changing U.S. tariff threats is restraining consumers’ spending intentions and businesses’ plans to hire and invest.
- While monetary policy cannot offset the impacts of a trade war, the Governing Council will carefully assess the timing and strength of both the downward pressures on inflation from a weaker economy and the upward pressures on inflation from higher costs.
- The Council will also be closely monitoring inflation expectations and is committed to maintaining price stability for Canadians by keeping inflation close to the 2% target.
- The next meeting is on 16 April 2025.
Next 24 Hours Bias
Weak Bullish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Following the larger-than-anticipated build in the API stockpiles on Tuesday, the EIA inventories also rose for the second consecutive week as nearly 1.5M barrels of crude were added. Rising storage levels reflect weaker demand for oil in the United States – a theme that has been running since the beginning of February. Combined with trade uncertainties and OPEC+’s latest plan to unwind voluntary production cuts in April, oil prices continue to remain under the cosh. However, WTI oil found a temporary floor around $66 per barrel at the beginning of this week to climb 2.6%, hitting an overnight high of $67.88.
Next 24 Hours Bias
Weak Bearish
