IC Markets Europe Fundamental Forecast | 4 April 2025
What happened in the Asia session?
With China’s and Hong Kong’s stock markets and banks closed on Friday morning in observance of Tomb Sweeping Day, it was a relatively quiet session as the dollar index (DXY) hovered around 101.70 while spot prices for gold floated above $3,100/oz. ‘Risk-off’ sentiment continues to grow as evident in the price action of European and U.S. equity futures.
What does it mean for the Europe & US sessions?
Construction activity in the U.K. has declined sharply over the last couple of months, falling into contraction for the months of January and February. PMI output fell to 44.6 in February, down from 48.1 in the previous month, missing market expectations of 49.5. The latest reading indicated a sharp decline in overall construction activity and marked the steepest drop since May 2020, driven by weak demand, elevated borrowing costs, and a shortage of new projects to replace completed ones. The forecast of 46.3 points to a marginal improvement in construction activity but this sector would still remain in contraction for the third successive month. However, Cable surged over 1.6% over the past few days as demand for the greenback eviscerated following the tariff announcements on Liberation Day – this currency pair will likely retain its upward momentum despite a weak construction sector.
Canada will release its Labour Force report at the same time as the U.S. NFPs, where 10.4k jobs are expected to be added to the Canadian economy while the unemployment rate is anticipated to edge higher from 6.6% to 6.7% in March. Coupled with escalating concerns surrounding a global trade war, Canadian and U.S. financial markets will no doubt face extreme volatility later today.
The Dollar Index (DXY)
Key news events today
BLS Employment Report (12:30 pm GMT)
Fed Chairman Powell’s Speech (3:25 pm GMT)
What can we expect from DXY today?
The Bureau of Labor Statistics (BLS) will release the non-farm payrolls (NFPs) for March where 137k jobs are expected to be added to the U.S. economy, lower than the previous month’s gains of 151k, while the unemployment rate is set to remain unchanged at 4.1%. With the ADP reporting stronger-than-anticipated job gains on Wednesday, could NFP’s post a larger figure? If so, it could function as a much-needed bullish catalyst for the dollar.
Later on, Federal Reserve Chairman Jerome Powell will be speaking about the economic outlook at the Society for Advancing Business Editing and Writing Annual Conference in Arlington where audience questions are expected. Following the slew of tariff announcements on 2nd April, Chairman Powell could be peppered with questions about how these tariffs could impact the Fed’s decision-making process. Whatever the outcome, volatility is likely to surge once more during the U.S. trading hours.
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 19 March 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; 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.
- 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 is 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 6 to 7 May 2025.
Next 24 Hours Bias
Strong Bearish
Gold (XAU)
Key news events today
BLS Employment Report (12:30 pm GMT)
Fed Chairman Powell’s Speech (3:25 pm GMT)
What can we expect from Gold today?
The Bureau of Labor Statistics (BLS) will release the non-farm payrolls (NFPs) for March where 137k jobs are expected to be added to the U.S. economy, lower than the previous month’s gains of 151k, while the unemployment rate is set to remain unchanged at 4.1%. With the ADP reporting stronger-than-anticipated job gains on Wednesday, could NFP’s post a larger figure? If so, it could function as a much-needed bullish catalyst for the dollar.
Later on, Federal Reserve Chairman Jerome Powell will be speaking about the economic outlook at the Society for Advancing Business Editing and Writing Annual Conference in Arlington where audience questions are expected. Following the slew of tariff announcements on 2nd April, Chairman Powell could be peppered with questions about how these tariffs could impact the Fed’s decision-making process. Whatever the outcome, volatility is likely to surge once more during the U.S. trading hours.
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?
Since Tuesday, the Aussie rallied over 2.5% before fizzling out around 0.6390 on Thursday. This currency pair retreated quickly overnight and was edging lower toward 0.6300 at the beginning of Friday’s Asia session.
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
Weak Bearish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi has surged over 3% since Tuesday as it hit an overnight high of 0.5853 before pulling back quite sharply. This currency pair was floating around 0.5780 and it could face some near-term headwinds on the final trading day of the week.
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 Bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
The latest announcements of tariffs by U.S. President Donald Trump on Liberation Day rattled financial markets, sparking fierce demand for safe-haven assets such as the yen. The ‘risk-off’ sentiment caused USD/JPY to dive under 146 as it shed nearly 3% over the past couple of days – this currency pair retraced overnight to climb above 146 but overhead pressures remain firmly intact.
Central Bank Notes:
- The Policy Board of the Bank of Japan decided on 19 March, by a unanimous vote, to maintain 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 economy has continued to recover moderately, with some sectors showing improvement. Exports and industrial production have remained relatively stable, while corporate profits continue on an improving trend and business sentiment maintains a favourable level.
- The employment and income situation has shown moderate improvement, with private consumption on a moderately increasing trend despite ongoing impacts from price rises.
- 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 3.0-3.5% recently. Services prices continue to rise moderately, reflecting factors such as wage increases, while the effects of cost pass-through from past import price rises have diminished.
- Inflation expectations have continued to rise moderately, with underlying CPI inflation gradually increasing toward the price stability target of 2%. The virtuous cycle between wages and prices continues to strengthen, with businesses increasingly reflecting higher costs in selling prices.
- Japan’s economy is expected to maintain growth above its potential rate, supported by moderately growing overseas economies and the intensifying virtuous cycle from income to spending, underpinned by accommodative financial conditions.
- The next meeting is scheduled for 19 June 2025.
Next 24 Hours Bias
Medium Bearish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
Thursday’s final PMI readings for manufacturing and services activity in the Euro Area marked an improvement in March, exceeding their respective forecasts. This marked the third consecutive month of expansion at the Composite level and the strongest growth since last August. Along with falling demand for the greenback, the Euro rallied over 3% to hit an overnight high of 1.1145 before pulling back slightly. This currency pair edged higher toward 1.1100 as Asian markets came online.
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
Strong Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Despite inflationary pressures in Switzerland dissipating significantly since the fourth quarter of 2022, growing concerns for a global trade war have spared intense demand for the franc with USD/CHF diving over 2.8% over the past couple of days. Overhead pressures continue to build for this currency pair as it slid toward 0.8550 at the beginning of Friday’s Asia session.
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
Strong Bearish
The Pound (GBP)
Key news events today
Construction PMI (8:30 am GMT)
What can we expect from GBP today?
Construction activity in the U.K. has declined sharply over the last couple of months, falling into contraction for the months of January and February. PMI output fell to 44.6 in February, down from 48.1 in the previous month, missing market expectations of 49.5. The latest reading indicated a sharp decline in overall construction activity and marked the steepest drop since May 2020, driven by weak demand, elevated borrowing costs, and a shortage of new projects to replace completed ones. The forecast of 46.3 points to a marginal improvement in construction activity but this sector would still remain in contraction for the third successive month. However, Cable surged over 1.6% over the past few days as demand for the greenback eviscerated following the tariff announcements on Liberation Day – this currency pair will likely retain its upward momentum despite a weak construction sector.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 8 to 1 to maintain the Bank Rate at 4.50% on 19 March 2025, while one member preferred to reduce it by 25 basis points (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.
- Twelve-month CPI inflation increased to 3.0% in January from 2.5% in December, slightly higher than expected in the February Report; domestic price and wage pressures are moderating, but remain somewhat elevated.
- Although global energy prices have fallen back recently, they remain higher than last year and CPI inflation is still projected to rise to around 3.75% in 2025 Q3. While CPI inflation is expected to fall back thereafter, the Committee will pay close attention to any consequent signs of more lasting inflationary pressures.
- While UK GDP growth estimates have been slightly stronger than expected at the time of the February Monetary Policy Report, business survey indicators generally continue to suggest weakness in growth and particularly in employment intentions. In recent quarters, subdued activity has been judged to reflect both demand and supply factors.
- The labour market had continued to ease, although it was still judged to be broadly in balance – some indicators of employment intentions had deteriorated markedly, to levels consistent with shrinking employment while other indicators, such as the number of vacancies, had not weakened to the same extent.
- Domestic price and wage pressures were moderating, but remained somewhat elevated. A range of indicators suggested that underlying pay growth had eased further in recent months, although annual growth in private sector regular average weekly earnings had picked up to 6.1% in the three months to January.
- 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 (12:30 pm GMT)
What can we expect from CAD today?
Canada will release its Labour Force report at the same time as the U.S. NFPs, where 10.4k jobs are expected to be added to the Canadian economy while the unemployment rate is anticipated to edge higher from 6.6% to 6.7% in March. Coupled with escalating concerns surrounding a global trade war, Canadian and U.S. financial markets will no doubt face extreme volatility later today. The Loonie has gained 1.8% this week, causing USD/CAD to tumble sharply under 1.4100 – this currency pair was floating around 1.4050 as Asian markets came online.
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
Medium Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Crude oil prices nosedived on Thursday with WTI oil plunging nearly 8% at its lowest point to momentarily dive under $66 per barrel – this drop marked the steepest percentage loss since 2022. Not only did oil markets have to absorb the slew of tariff announcements by the White House on Liberation Day, but OPEC+ also surprised market participants with an agreement to increase production output. During Thursday’s OPEC-JMMC meetings, the OPEC+ member countries agreed to advance their plan for oil output hikes, now aiming to return 411k barrels per day (bpd) to the market in May, up from the 135k bpd that was planned initially. Oil prices are all set to notch its first weekly decline in four weeks.
Next 24 Hours Bias
Medium Bearish
