GBP Faces Growth Worries, EUR Eyes German Politics, USD Braces for Inflation Data | Daily Report: 25/02/25
GBP
The British Pound could face challenges as the Bank of England Governor Andrew Bailey remains concerned over economic prospects this year. Bailey warned that the economic growth is expected to remain sluggish. For the time being, it is attempting to draw support from strong UK Retail Sales data for January, reducing expectations of a Bank of England rate cut in March. These expectations were already challenged by hotter-than-expected January inflation and robust Average Earnings data through December.
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EUR
Market attention is shifting to the coalition-building process in Germany, with stable leadership seen as crucial for advancing key fiscal reforms. This political outcome comes amid Germany’s economic stagnation, the ongoing conflict in Ukraine, and rising tariff threats from US President Donald Trump. A proposed reform of Germany’s debt brake, which has long hindered investment, is expected to further strengthen the Euro. Meanwhile, European Central Bank policymaker Pierre Wunsch said that while he isn’t advocating for an April pause, rate cuts shouldn’t happen automatically without proper consideration. ECB’s Francois Villeroy de Galhau also suggested the ECB could lower its deposit rate to 2%
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USD
A resurgence in US inflation figures late last week kicked off a fresh round of risk aversion. Investors will be focused on upcoming US Personal Consumption Expenditure inflation data due later this week. Traders hope that an early-year uptick in headline inflation data from the US will recede quickly and not solidify into another drawn-out battle with “transitory” inflation that runs too hot for the Federal Reserve to deliver rate cuts. Elsewhere, President Trump reiterated his own threats of high tariffs on Canada and Mexico on Monday, warning that tariffs are still due to be enacted “next month” after caving on his own tariff pressures in recent weeks and granting a delay to nearly every country he’s threatened with import taxes.
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