Week in Currency - 06/01/2025

GBP to USD sinks to lowest level in 9-months, as the US Dollar extends its gains.

GBP

According to a recent poll, more than 50% of Bris belive the UK will enter a recession in 2025. In addition, just 53% expect inflation to drop below the Bank of England's target rate of two percent. The data from Ipsos shows a gloomy outlook for the upcoming year as the UK economy faces serious challenges. The latest GDP figures show the economy shrank in both September and October 2024. If December's economic activity doesn't improve, economists will be closely watching the first three months of 2025 to see if the UK officially enters a recession.

A weakening Pound vs a strong US dollar has seen the exchange rate drop to its lowest level since April 2024.

USD

The dollar was on track for its strongest weekly performance since early December on Friday, propped up by expectations that the US economy will continue to outperform its peers globally this year, and US interest rates will stay elevated for longer. The greenback began the new year on a strong note, reaching close to a two-year high against a basket of currencies on Thursday as it extended a stellar rally from last year.

A more hawkish Fed and a resilient US economy have led US Treasury yields to rise, prompting the dollar to charge even higher. Coupled with expectations that policies by US President-elect Donald Trump will boost growth this year and potentially add to price pressures, the dollar now looks relentless.

EUR

The European Central Bank’s 2% inflation target is in sight, according to President Christine Lagarde. “We have made significant progress in 2024 in bringing down inflation and hopefully 2025 is the year when we are on target as expected and as planned in our strategy,” she said. “Of course, we will continue our efforts to ensure that inflation stabilises sustainably at that 2% medium-term target.”

Euro-area consumer-price growth decelerated over the course of last year and went below the ECB’s target in September, though it has ticked up again in recent months and Lagarde has warned that it will fluctuate around its current level in the near term. Still, that slowdown allowed policymakers to cut interest rates in four quarter-point moves and economists predict another four reductions through June.

Elsewhere

Bank of Japan Governor Kazuo Ueda said on Monday the central bank will raise interest rates further if the economy continues to improve, though he stressed the need to consider various risks when deciding how soon to pull the trigger.

The Australian Dollar has extended its gains for the third successive session following the release of the Judo Bank Australia Purchasing Managers' Index and the Caixin Services PMI for China, its key trading partner.

The Swiss Franc has steadied from its losses from last week following the release of Real Retail Sales in Switzerland, which came in at a 0.8% increase year-over-year in November, falling short of the expected 1.2% rise and previous reading of 1.5%.

Canadian Prime Minister Justin Trudeau is likely to announce his resignation in the coming days, according to reports. Sources have told Reuters news agency and Canada's Globe that Justin could announce as early as today that he would quit as leader of Canada's ruling Liberal Party.

Have a good week!

Estuary FX

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This week’s key data: