IC Markets Europe Fundamental Forecast | 7 March 2025
What happened in the Asia session?
Financial markets treaded with caution as the dollar index (DXY) floated around 104 while spot prices for gold drifted towards $2,900/oz. Trading activity could continue to remain relatively muted during the European hours but markets should spring to life once the non-farm payrolls (NFPs) hit the news wires at the beginning of the U.S. session.
What does it mean for the Europe & US sessions?
ECB President Christine Lagarde will be in the spotlight on Friday once more but this time she will be speaking at the International Women’s Day event in Frankfurt where she could be probed with questions on monetary policy action by the ECB. The Euro surged more than 4% at its highest point this week and this currency pair should continue to remain elevated as the trading week comes to a close.
Meanwhile, Canada will also release the equivalent of its NFPs later today and the simultaneous release of their employment figures alongside the BLS’s labour data is bound to inject higher volatility for the Loonie later today.
The Dollar Index (DXY)
Key news events today
BLS Employment Report (1:30 pm GMT)
Fed Chair Powell’s Speech (5:30 pm GMT)
U.S. President Trump’s Speech (6:30 pm GMT)
What can we expect from DXY today?
The highly anticipated NFPs will be released by the BLS where 159k jobs are expected to be added to the U.S. labour market in February while the unemployment rate remains unchanged at 4.0%. However, Wednesday’s ADP highlighted a significant slowdown in job creation for the private sector with only 77k workers added to payrolls, massively undershooting forecasts of 140k. Combined with the recent uncertainty surrounding global trade tariffs, corporates could have adopted a ‘wait and see’ approach with regard to hiring in February, suggesting weaker job growth for tonight’s data.
Later on, Federal Reserve Chairman Jerome Powell will be speaking about the economic outlook at the University of Chicago Booth School of Business US Monetary Policy Forum where audience questions are expected. There is no doubt that Chairman Powell will be peppered with queries on the latest NFP print. In addition, U.S. President Donald Trump will be participating in a roundtable discussion about cryptocurrency policy at the White House in Washington D.C. where this asset class will be looking for another bullish catalyst to bolster market sentiment.
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
Medium Bearish
Gold (XAU)
Key news events today
BLS Employment Report (1:30 pm GMT)
Fed Chair Powell’s Speech (5:30 pm GMT)
What can we expect from Gold today?
The highly anticipated NFPs will be released by the BLS where 159k jobs are expected to be added to the U.S. labour market in February while the unemployment rate remains unchanged at 4.0%. However, Wednesday’s ADP highlighted a significant slowdown in job creation for the private sector with only 77k workers added to payrolls, massively undershooting forecasts of 140k. Combined with the recent uncertainty surrounding global trade tariffs, corporates could have adopted a ‘wait and see’ approach with regard to hiring in February, suggesting weaker job growth for tonight’s data. Later on, Federal Reserve Chairman Jerome Powell will be speaking about the economic outlook at the University of Chicago Booth School of Business US Monetary Policy Forum where audience questions are expected. There is no doubt that Chairman Powell will be peppered with queries on the latest NFP print.
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 Aussie had risen 2.5% this week before running out of steam at around 0.6363 on Thursday. This currency pair eased toward 0.6300 overnight and the downward momentum was gaining traction as Asian markets came online on the final trading day of the week.
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
Medium Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
After soaring nearly 3% this week, the Kiwi fizzled out on Thursday as it hit an overnight high of 0.5759. This currency pair was edging lower towards 0.5700 at the beginning of the Asia session as it took a breather after a strong run-up.
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
Medium Bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
The yen continued to see strong inflows as it appreciated strongly versus the greenback. Demand for safe-haven currencies such as the yen amidst the backdrop of global trade uncertainties has driven USD/JPY under 148 this week. This currency pair has shed almost 2% this week, with overhead pressures remaining firmly intact.
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 Bearish
The Euro (EUR)
Key news events today
ECB President Lagarde’s Speech (9:30 am GMT)
What can we expect from EUR today?
As widely expected, the ECB lowered its three key interest rates by 25 basis points (bps), reducing the deposit facility rate to 2.50%, the main refinancing rate to 2.65%, and the marginal lending rate to 2.90% – the decision reflecting an updated assessment of the inflation outlook and monetary policy transmission. This central bank acknowledged that monetary policy was becoming meaningfully less restrictive, easing borrowing costs for businesses and households. Inflation is projected to average 2.3% in 2025, 1.9% in 2026, and 2.0% in 2027, with core inflation also nearing 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.
President Lagarde will be in the spotlight on Friday once more but this time she will be speaking at the International Women’s Day event in Frankfurt where she could be probed with questions on monetary policy action by the ECB. The Euro surged more than 4% at its highest point this week and this currency pair should continue to remain elevated as the trading week comes to a close.
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
Medium Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Demand for safe-haven currencies such as the franc amidst the backdrop of global trade uncertainties has driven USD/CHF under 0.8900 this week. This currency pair has already dived over 2% this week and it looks set to break under 0.8800 by the end of Friday’s trading session.
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?
Construction activity in the U.K. fell to 44.6 in February, down from 48.1 in the previous month as it missed market expectations of 49.5. The latest reading indicated a sharp decline in overall construction activity, marking the steepest drop since May 2020, driven by weak demand, elevated borrowing costs, and a shortage of new projects to replace completed ones. Residential building, contracted for a fifth consecutive month, representing the steepest decline since early 2009, excluding the pandemic period. Additionally, civil engineering activity contracted at its fastest pace since October 2020, while commercial construction declined only marginally. Meanwhile, inflows of new orders fell the most in nearly five years and the pace of job shedding was the fastest since November 2020. Despite deteriorating conditions in the construction sector, the pound was unfazed as it rallied above 1.2900 before settling around 1.2880.
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
Medium Bullish
The Canadian Dollar (CAD)
Key news events today
Labour Force Report (1:30 pm GMT)
What can we expect from CAD today?
The ongoing trade tariffs between the U.S. and Canada, raised uncertainty and volatility for the Loonie, causing the Ivey PMI to drop sharply in January as it recorded its first contraction in five months. However, PMI activity rebounded strongly in February as it jumped from 47.1 to 55.3 to mark the highest reading in seven months. The rebound was led by an increase in components such as business activity and employment. Canada will also release the equivalent of its NFPs later today and the simultaneous release of their employment figures alongside the BLS’s labour data is bound to inject higher volatility for the Loonie later today.
Central Bank Notes:
- The Bank of Canada reduced its target for the overnight rate by 25 basis points bringing it down to 3% on 29 January; this marked the sixth 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.
- Past cuts to interest rates have started to boost the economy and the recent strengthening in both consumption and housing activity is expected to continue. However, business investment remains weak while the outlook for exports is being supported by new export capacity for oil and gas.
- The Bank forecasts GDP growth will strengthen in 2025 and now projects GDP will grow by 1.8% in both 2025 and 2026, somewhat higher than potential growth.
- The labour market remains soft, with the unemployment rate at 6.7% in December. Job growth has strengthened in recent months, after lagging growth in the labour force for more than a year. Wage pressures, which have proven sticky, are showing some signs of easing.
- CPI inflation remains close to 2%, with some volatility due to the temporary suspension of the GST/HST on some consumer products. Shelter price inflation is still elevated but it is easing gradually, as expected.
- A broad range of indicators, including surveys of inflation expectations and the distribution of price changes among components of the CPI, suggests that underlying inflation is close to 2% with forecasts that CPI inflation will be around the 2% target over the next two years.
- 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 a further 25 basis points to support growth and keep inflation close to the middle of the 1-3% target range.
- The cumulative reduction in the policy rate since last June is substantial as lower interest rates are boosting household spending and the economy is expected to strengthen gradually and inflation to stay close to target. However, if broad-based and significant tariffs were imposed, the resilience of Canada’s economy would be tested.
- The Bank is committed to maintaining price stability for Canadians by keeping inflation close to the 2% target.
- The next meeting is on 12 March 2025.
Next 24 Hours Bias
Medium Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Oil prices faced a choppy session as tariff uncertainty and plans by OPEC+ to increase production continue to linger. WTI oil swung between $67.09 and $65.59 before settling around $66.36 per barrel on Thursday. Overhead pressures remain firmly in place and this benchmark is all but certain to notch its seventh consecutive week of decline – matching the drop that occurred between the end of October and early December of 2023.
Next 24 Hours Bias
Medium Bearish
