IC Trading Europe Fundamental Forecast | 28 March 2025
What happened in the Asia session?
Japan’s Tokyo Core CPI accelerated from an annual rate of 2.2% in the previous month to 2.4% in March, higher than the market consensus of 2.2%. This marks the fifth consecutive month that core inflation has remained above the Bank of Japan’s (BoJ) 2% target, reinforcing expectations that the central bank will continue normalizing monetary policy. The BoJ held interest rates steady during its March policy meeting as the board took a cautious stance while assessing the impact of rising global risks on the domestic economy. However, Governor Kazuo Ueda signalled this week that further rate hikes are likely if economic conditions align with projections. The yen initially strengthened following this data release with USD/JPY falling toward 150.70 but it reversed swiftly to rise steadily toward 151.20 at the beginning of this session – this currency pair was floating around 150.80 by midday in Asia.
What does it mean for the Europe & US sessions?
After declining for four consecutive months, consumer spending in the U.K. rebounded strongly in January as sales jumped 1.7% MoM, easily surpassing market expectations of a 0.3% gain. This marked the strongest expansion since May 2024, with food stores such as supermarkets, specialist food stores as well as alcohol and tobacco stores leading the gains. However, February forecast points to a decline of 0.3%, signalling a return to negative sales growth. Weaker-than-expected consumer spending could create headwinds for the pound on the final trading day of the week.
Economic activity grew relatively strongly in December 2024 and January of this year as mining, quarrying and oil and gas extraction activities along with wholesale trade and transportation; and warehousing led the expansion. Following a growth of 0.3% in January, the Loonie should see strong tailwinds if Canada’s economy remains robust.
The Dollar Index (DXY)
Key news events today
PCE Price Index (12:30 pm GMT)
What can we expect from DXY today?
The PCE Price Index – which is the Federal Reserve’s preferred gauge of inflation – moderated lower in January as both headline and core readings eased, marking its first slowdown in four months. Should inflationary pressures continue to dissipate further in February, this recent ascend in the DXY could lose some steam 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
Medium Bullish
Gold (XAU)
Key news events today
PCE Price Index (12:30 pm GMT)
What can we expect from Gold today?
The PCE Price Index – which is the Federal Reserve’s preferred gauge of inflation – moderated lower in January as both headline and core readings eased, marking its first slowdown in four months. Should inflationary pressures continue to dissipate further in February, this recent ascend in the DXY could lose some steam during the U.S. trading hours, potentially providing a boost for gold prices.
Next 24 Hours Bias
Medium Bullish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
The Aussie has hovered around 0.6300 for most of this week but downward pressures are driving it toward 0.6270 at the beginning of Friday’s Asia session. Persistent demand for the greenback will likely weigh on the Aussie as the day progresses.
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
Weak Bearish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
Renewed demand for the greenback on Friday put downward pressure on the Kiwi. Overhead pressures are likely to build further as the day progresses and this currency pair could retest this week lows of 0.5700.
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 Bearish
The Japanese Yen (JPY)
Key news events today
Tokyo Core CPI (11:30 pm GMT 27th March)
What can we expect from JPY today?
Japan’s Tokyo Core CPI accelerated from an annual rate of 2.2% in the previous month to 2.4% in March, higher than the market consensus of 2.2%. This marks the fifth consecutive month that core inflation has remained above the Bank of Japan’s (BoJ) 2% target, reinforcing expectations that the central bank will continue normalizing monetary policy. The BoJ held interest rates steady during its March policy meeting as the board took a cautious stance while assessing the impact of rising global risks on the domestic economy. However, Governor Kazuo Ueda signalled this week that further rate hikes are likely if economic conditions align with projections. The yen initially strengthened following this data release with USD/JPY falling toward 150.70 but it reversed swiftly to rise steadily toward 151.20 at the beginning of this session – this currency pair was floating around 150.80 by midday in Asia.
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 Bullish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
The euro rallied strongly on Thursday as it rose 0.5% to climb above 1.0910. However, overhead pressures remain for this currency pair as it dipped under 1.0900 as Asian markets came online on Friday.
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 Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
With demand for the franc and the greenback seemingly at equilibrium since last week, USD/CHF has ranged sideways as it hovered above 0.8750 while running into headwinds at 0.8850 thus far. This currency pair looks set to extend this ‘neutral’ bias as the trading week wraps up on Friday.
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 Bullish
The Pound (GBP)
Key news events today
Retail Sales (7:00 am GMT)
What can we expect from GBP today?
After declining for four consecutive months, consumer spending in the U.K. rebounded strongly in January as sales jumped 1.7% MoM, easily surpassing market expectations of a 0.3% gain. This marked the strongest expansion since May 2024, with food stores such as supermarkets, specialist food stores as well as alcohol and tobacco stores leading the gains. However, February forecast points to a decline of 0.3%, signalling a return to negative sales growth. Weaker-than-expected consumer spending could create headwinds for the pound on the final trading day of the week.
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
Weak Bearish
The Canadian Dollar (CAD)
Key news events today
GDP (12:30 pm GMT)
What can we expect from CAD today?
Economic activity grew relatively strongly in December 2024 and January of this year as mining, quarrying and oil and gas extraction activities along with wholesale trade and transportation; and warehousing led the expansion. Following a growth of 0.3% in January, the Loonie should see strong tailwinds if Canada’s economy remains robust.
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
Weak Bullish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Oil prices edged higher on Thursday as traders assessed a tightening of crude supplies along with new U.S. tariffs and their expected effect on the world’s economy. The biggest headwind for oil right now is the concerns about trade and oil tariffs could slow demand growth, especially after U.S. President Donald Trump imposed new 25% tariffs on potential buyers of Venezuelan crude on Tuesday. WTI oil has climbed nearly 5% at its highest point this week due to fears of tighter supplies following the recent sanctions on Venezuelan oil. This benchmark briefly rose above $70 per barrel by Wednesday and then again on Thursday and is set to notch its third consecutive week of higher gains as trading comes to a close on Friday.
Next 24 Hours Bias
Medium Bullish
