IC Markets Europe Fundamental Forecast | 14 May 2025
What happened in the Asia session?
After declining in the second half of last year, Australia’s wage price index rebounded in the first quarter of 2025, rising at an annual rate of 3.4%, exceeding market expectations of a 3.2% gain. The acceleration was driven by stronger wage growth in the public sector, while private sector wage growth held steady at 3.3% – the lowest since the second quarter of 2022. On a quarterly basis, wage prices climbed 0.9%, up from a 0.7% gain in the previous quarter and ahead of forecasts for a 0.8% increase. The stronger-than-anticipated result could push back the Reserve Bank of Australia’s (RBA) plans for a potential rate cut at the upcoming board meeting next week, which would likely keep the Aussie elevated.
What does it mean for the Europe & US sessions?
Despite a surprise build of 4.3M barrels of crude in the API stockpiles, oil prices rose sharply on Tuesday with WTI oil rallying 2.8% overnight, coming within a whisker of the $64 mark. Following a relatively large draw of 4.5M barrels in the previous week, the latest API report was expected to show another week of drawdown with 2.4M barrels being removed from storage. The EIA inventories are anticipated to register a third successive week of drawdowns later today, a result that could provide further tailwinds for oil prices, especially when coupled with the reduced risk of global trade disruption, has improved the demand outlook.
The Dollar Index (DXY)
Key news events today
Fed Governor Waller’s Speech (9:15 am GMT)
Fed Governor Jefferson’s Speech (1:10 pm GMT)
What can we expect from DXY today?
Federal Reserve Governor Christopher Waller is due to speak at the Award Ceremony for the Winners of the 2nd Edition of the Bank Al-Maghrib Prize for Economic and Financial Research in Morocco, where audience questions are expected. Later on, Fed Governor Philip Jefferson will be speaking about the economic outlook at a virtual event hosted by the Second District Advisory Council. Following the recent announcement of the trade deal between the U.S. and China along with Tuesday’s ‘soft’ U.S. inflation print, markets will be probing these Fed governors for further insights on the outlook for future monetary policy action.
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 7 May 2025.
- The Committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run, but uncertainty around the economic outlook has increased further.
- The Committee is attentive to the risks to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have risen.
- Although swings in net exports have affected the data, recent indicators suggest that economic activity has continued to expand at a solid pace while the unemployment rate has stabilised at a low level in recent months, and labour market conditions remain solid. However, inflation remains somewhat elevated.
- GDP growth forecasts were revised downward for 2025 (1.7% vs. 2.1% in the December projection) while PCE inflation projections have been adjusted slightly higher for 2025, with core inflation expected to reach 2.5%, partly due to tariff-related pressures.
- 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 its goals.
- Beginning in April, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $25B to $5B while maintaining the monthly redemption cap on agency debt and agency mortgage-backed securities at $35B.
- The next meeting is scheduled for 17 to 18 June 2025.
Next 24 Hours Bias
Medium Bearish
Gold (XAU)
Key news events today
Fed Governor Waller’s Speech (9:15 am GMT)
Fed Governor Jefferson’s Speech (1:10 pm GMT)
What can we expect from Gold today?
Federal Reserve Governor Christopher Waller is due to speak at the Award Ceremony for the Winners of the 2nd Edition of the Bank Al-Maghrib Prize for Economic and Financial Research in Morocco, where audience questions are expected. Later on, Fed Governor Philip Jefferson will be speaking about the economic outlook at a virtual event hosted by the Second District Advisory Council. Following the recent announcement of the trade deal between the U.S. and China along with Tuesday’s ‘soft’ U.S. inflation print, markets will be probing these Fed governors for further insights on the outlook for future monetary policy action. After tumbling over 6% since last Wednesday, gold found its footing on Tuesday as spot prices stabilised around $3,240/oz.
Next 24 Hours Bias
Weak Bullish
The Australian Dollar (AUD)
Key news events today
Wage Price Index (1:30 am GMT)
What can we expect from AUD today?
After declining in the second half of last year, Australia’s wage price index rebounded in the first quarter of 2025, rising at an annual rate of 3.4%, exceeding market expectations of a 3.2% gain. The acceleration was driven by stronger wage growth in the public sector, while private sector wage growth held steady at 3.3% – the lowest since the second quarter of 2022. On a quarterly basis, wage prices climbed 0.9%, up from a 0.7% gain in the previous quarter and ahead of forecasts for a 0.8% increase. The stronger-than-anticipated result could push back the Reserve Bank of Australia’s (RBA) plans for a potential rate cut at the upcoming board meeting next week, which would likely keep the Aussie elevated.
Central Bank Notes:
- The RBA maintained the cash rate at 4.10% on 1 April, following a 25-basis point reduction on 18 February.
- 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.
- Recent information suggests that underlying inflation continues to ease in line with the most recent forecasts published in the February Statement on Monetary Policy.
- Private domestic demand appears to be recovering, real household incomes have picked up and there has been an easing in some measures of financial stress. However, businesses in some sectors continue to report that weakness in demand makes it difficult to pass on cost increases to final prices.
- At the same time, a range of indicators suggest that labour market conditions remain tight. Despite a decline in employment in February, measures of labour underutilisation are at relatively low rates and business surveys and liaison suggest that availability of labour is still a constraint for a range of employers. Wage pressures have eased a little more than expected but productivity growth has not picked up and growth in unit labour costs remains high.
- There are notable uncertainties about the outlook for domestic economic activity and inflation. The central projection is for growth in household consumption to continue to increase as income growth rises. But there is a risk that any pick-up in consumption is slower than expected, resulting in continued subdued output growth and a sharper deterioration in the labour market than currently expected.
- Uncertainty about the outlook abroad also remains significant. On the macroeconomic policy front, recent announcements from the U.S. on tariffs are having an impact on confidence globally and this would likely be amplified if the scope of tariffs widens, or other countries take retaliatory measures. Geopolitical uncertainties are also pronounced.
- The Board’s assessment is that monetary policy remains restrictive and the continued decline in underlying inflation is welcome, but there are nevertheless risks on both sides and the Board is cautious about the outlook.
- The Board will rely upon the data and the evolving assessment of risks to guide its decisions and is resolute in its determination to sustainably return inflation to target and will do what is necessary to achieve that outcome.
- The next meeting is on 20 May 2025.
Next 24 Hours Bias
Medium Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi surged 1.6% on the back of ‘cooling’ U.S. consumer inflation on Tuesday. This currency pair broke through the 0.5900 mark with ease and was seen rising steadily toward 0.5950 as Asian markets came online.
Central Bank Notes:
- The Monetary Policy Committee (MPC) agreed to reduce the Official Cash Rate (OCR) by 25 basis points bringing it down to 3.50% on 9 April, marking the fifth consecutive rate cut.
- The Committee assessed that annual consumer price inflation remains near the midpoint of the MPC’s 1 to 3% target band while firms’ inflation expectations and core inflation are consistent with inflation remaining at target over the medium term.
- Economic activity has evolved largely as expected since the February Monetary Policy Statement; higher-than-expected export prices and a lower exchange rate have supported primary sector incomes and overall economic growth.
- Although monetary restraint had been removed at pace, household spending and residential investment have remained weak.
- The recently announced increases in global trade barriers weaken the outlook for global economic activity. On balance, these developments create downside risks to the outlook for economic activity and inflation.
- The Committee noted that the increase in tariffs will take time to work through the global economy, but the direct price increases for economies imposing tariffs and the dampening impact of increased economic uncertainty on global demand will occur relatively quickly.
- With CPI inflation close to the mid-point of the target range, significant spare capacity in the economy, and a weaker activity outlook stemming from global trade policy, the Committee agreed that a further reduction in the OCR was appropriate.
- Meanwhile, future policy decisions will be determined by the outlook for inflationary pressure over the medium term.
- The next meeting is on 28 May 2025.
Next 24 Hours Bias
Medium Bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
With inflationary pressures ‘cooling’ in the U.S., demand for the greenback waned causing USD/JPY to retreat 0.7% on Tuesday. This currency pair fell from a high of 148.45 and slid under 147.50 – it continued drifting lower toward the 147 mark at the beginning of Wednesday’s Asia session.
Central Bank Notes:
- The Policy Board of the Bank of Japan decided on 1 May, by a unanimous 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 continue its plan to reduce the amount of its monthly outright purchases of JGBs, aiming to reach about 3 trillion yen by January-March 2026.
- Japan’s economic growth is likely to moderate, as trade and other policies in each jurisdiction lead to a slowdown in overseas economies and to a decline in domestic corporate profits and other factors, although factors such as accommodative financial conditions are expected to provide support. Thereafter, Japan’s economic growth rate is likely to rise, with overseas economies returning to a moderate growth path.
- The year-on-year rate of increase in the consumer price index (CPI, all items less fresh food) is likely to be in the range of 2.0-2.5% for fiscal 2025, in the range of 1.5-2.0% for fiscal 2026, and at around 2% for fiscal 2027. The effects of the past rise in import prices and of the recent rise in food prices such as rice prices – these factors have pushed up the inflation rate so far – are expected to wane.
- Meanwhile, underlying CPI inflation is likely to be sluggish, mainly due to the deceleration in the economy. Thereafter, however, underlying CPI inflation is expected to increase gradually.
- Regarding the employment and income situation, despite the deceleration in the economy, labour market conditions are likely to remain tight, as it will become more difficult for labour supply of women and seniors to increase.
- Comparing the projections through fiscal 2026 with those presented in the previous Outlook for Economic Activity and Prices (Outlook Report), the projected real GDP growth rate for fiscal 2024 is somewhat higher, but the projected growth rates for fiscal 2025 and 2026 are lower due to the effects of trade and other policies in each jurisdiction.
- There are various risks to the outlook. In particular, it is extremely uncertain how trade and other policies in each jurisdiction will evolve and how overseas economic activity and prices will react to them. It is therefore necessary to pay due attention to the impact of these developments on financial and foreign exchange markets and on Japan’s economic activity and prices.
- With regard to the risk balance, risks to economic activity are skewed to the downside for fiscal 2025 and 2026. Risks to prices are also skewed to the downside for fiscal 2025 and 2026.
- The next meeting is scheduled for 17 June 2025.
Next 24 Hours Bias
Weak Bearish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
Tuesday’s significant improvement in the ZEW economic sentiment for both the Euro Area and Germany provided a strong lift for the Euro, while the ‘soft’ CPI result out of the U.S. provided additional tailwinds. This currency pair jumped 1% overnight, and the upward momentum is likely to gain further traction on Wednesday.
Central Bank Notes:
- The Governing Council reduced the three key ECB interest rates by 25 basis points on 17 April to mark the sixth 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 2.40%, 2.65% and 2.25% respectively.
- The disinflation process is well on track with both headline and core inflation declining in March while services inflation has also eased markedly over recent months. Most measures of underlying inflation suggest that inflation will settle at around the Governing Council’s 2% medium-term target on a sustained basis.
- Wage growth is moderating, and profits are partially buffering the impact of still elevated wage growth on inflation. The euro area economy has been building up some resilience against global shocks, but the outlook for growth has deteriorated owing to rising trade tensions.
- Increased uncertainty is likely to reduce confidence among households and firms, and the adverse and volatile market response to the trade tensions is likely to have a tightening impact on financing conditions. These factors may further weigh on the economic outlook for the euro area.
- 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 Governing Council is determined to ensure that inflation stabilises sustainably at its 2% medium-term target. Especially in current conditions of exceptional uncertainty, it will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance.
- In particular, the Council’s interest rate decisions will be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission.
- The next meeting is on 5 June 2025.
Next 24 Hours Bias
Medium Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
The ‘soft’ CPI print out of America sapped demand for the greenback during Tuesday’s U.S. session, causing USD/CHF to fall 0.8%. This currency pair reversed off its highs at 0.8457 to dip under 0.8400 overnight – it was drifting toward 0.8350 as Asian markets came online on Wednesday.
Central Bank Notes:
- The SNB eased monetary policy by lowering its key policy rate by 25 basis points, from 0.50% to 0.25% on 20 March 2025, marking the fifth consecutive reduction.
- Underlying inflationary pressure has decreased further this quarter.
- Inflation in the period since the last monetary policy assessment has again been lower than expected, decreasing from 0.7% in November to 0.3% in February, primarily due to lower electricity prices.
- In the shorter term, the new conditional inflation forecast is slightly higher than December: 0.3% for Q2 2025, 0.4% for 2025 overall, and 0.8% for 2026 and 2027, based on the assumption that the SNB policy rate remains at 0.25% over the entire forecast horizon.
- GDP growth in Switzerland remains moderate, with the services sector continuing to show slightly stronger growth, while manufacturing faces challenges.
- The SNB anticipates GDP growth of around 1.0% to 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 19 June 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?
Tuesday’s Labour Force report showed mixed figures as the claimant count change registered just 5.2k versus market forecasts of 22.3k claims in April, while the previous month’s figures were revised lower from 18.7k to -16.9k. Meanwhile, the unemployment rate was revised higher from 5.6% to 5.7% in March – April’s result eased to 5.5%, but it was still noticeably higher than the estimate of 5.2%. Wage growth remains robust despite this rise in joblessness. However, Cable rebounded over 1% on Tuesday as dollar weakness saw this currency pair rally from 1.3160 to an overnight high of 1.3316.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 5 to 4 to reduce the Bank Rate by 25 basis points (bps), bringing it down to 4.25% on 8 May 2025.
- Two members preferred a larger cut of 50 bps, while two opted to hold rates steady at 4.5%.
- 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.
- Progress on disinflation in domestic price and wage pressures is generally continuing. Twelve-month CPI inflation fell to 2.6% in March from 2.8% in February, close to expectations in the February Report.
- Although indicators of pay growth remain elevated, a significant slowing is still expected over the rest of the year.
- Wholesale energy prices have fallen back since the February Report. Previous increases in energy prices are still likely to drive up CPI inflation from April onwards, to 3.5% for 2025 Q3, but is expected to fall back thereafter.
- Underlying UK GDP growth is judged to have slowed since the middle of 2024 and has been much less volatile than growth in headline GDP – growth was expected to have been around zero in 2025 Q1, well below Bank staff’s projection for headline growth of 0.6%.
- Underlying employment growth has also softened recently and the labour market has continued to loosen. The ratio of vacancies to unemployment has fallen further and is now judged to be below its equilibrium level – the impact of higher Employers’ National Insurance Contributions (NICs) on employment appears to have been fairly small to date.
- 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 19 June 2025.
Next 24 Hours Bias
Medium Bullish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
After depreciating nearly 2% since last Wednesday, the Loonie strengthened on Tuesday as the demand outlook for crude oil improved. The gains in the Loonie caused USD/CAD to reverse off Tuesday’s highs at 1.4016 and tumble under 1.3950. The EIA crude oil inventory data could inject higher volatility for USD/CAD during the U.S. session later today – this currency pair was hovering around 1.3930 at the beginning of today’s Asia session.
Central Bank Notes:
- The Bank of Canada today maintained its target for the overnight rate at 2.75%, with the Bank Rate at 3% and the deposit rate at 2.70% – marking the first pause after seven consecutive meetings where rates were reduced.
- The major shift in direction of U.S. trade policy and the unpredictability of tariffs have increased uncertainty, diminished prospects for economic growth, and raised inflation expectations.
- Pervasive uncertainty makes it unusually challenging to project GDP growth and inflation in Canada and globally – the April Monetary Policy Report (MPR) presents two scenarios that explore different paths for US trade policy.
- In the first scenario, uncertainty is high but tariffs are limited in scope – Canadian growth weakens temporarily and inflation remains around the 2% target. In the second scenario, a protracted trade war causes Canada’s economy to fall into recession this year and inflation rises temporarily above 3% next year.
- Global economic growth was solid in late 2024 and inflation has been easing towards central bank targets. However, tariffs and uncertainty have weakened the outlook. In the U.S., the economy is showing signs of slowing amid rising policy uncertainty and rapidly deteriorating sentiment, while inflation expectations have risen. In the Euro Area, growth has been modest in early 2025, with continued weakness in the manufacturing sector. China’s economy was strong at the end of 2024 but more recent data shows it slowing modestly.
- In Canada, the economy is slowing as tariff announcements and uncertainty pull down consumer and business confidence. Consumption, residential investment and business spending all look to have weakened in the first quarter. Trade tensions are also disrupting recovery in the labour market. Employment declined in March and businesses are reporting plans to slow their hiring. Wage growth continues to show signs of moderation.
- The Governing Council will continue to 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 while proceeding carefully, with particular attention to the risks and uncertainties facing the Canadian economy.
- Monetary policy cannot resolve trade uncertainty or offset the impacts of a trade war and the Governing Council will focus on ensuring that Canadians continue to have confidence in price stability through this period of global upheaval by supporting economic growth while ensuring that inflation remains well-controlled.
- The next meeting is on 4 June 2025.
Next 24 Hours Bias
Weak Bearish
Oil
Key news events today
EIA Crude Oil Inventories (2:30 pm GMT)
What can we expect from Oil today?
Despite a surprise build of 4.3M barrels of crude in the API stockpiles, oil prices rose sharply on Tuesday with WTI oil rallying 2.8% overnight, coming within a whisker of the $64 mark. Following a relatively large draw of 4.5M barrels in the previous week, the latest API report was expected to show another week of drawdown with 2.4M barrels being removed from storage. The EIA inventories are anticipated to register a third successive week of drawdowns later today, a result that could provide further tailwinds for oil prices, especially when coupled with the reduced risk of global trade disruption, has improved the demand outlook.
Next 24 Hours Bias
Medium Bullish
