Published: 19/12/2024 By ECAP
The British Pound faces two key risks ahead of the Bank of England's interest rate decision. A "hawkish" outcome, with signals to keep rates high, would likely boost the Pound due to reduced rate cut expectations. Conversely, a "dovish" stance, suggesting more rate cuts ahead, could weaken the Pound. Ultimately, market expectations for 2025 rate cuts will heavily influence Sterling's movement.The Euro weakened after the Federal Reserve signaled it would only cut rates twice in 2025, causing EUR/USD to hit its lowest close in two years. This shift in projections led to a divergence in economic conditions between the Eurozone and other regions. As a result, the Euro fell, reflecting concerns about weaker economic prospects in the Eurozone and the attractiveness of other currencies with higher returns.
The U.S. Dollar strengthened after the Federal Reserve cut interest rates by 25-basis points but signaled fewer rate cuts for 2025. In fact, the Fed revised its projections, now expecting only two rate cuts next year, down from four. This hawkish stance, combined with higher U.S. GDP and inflation forecasts, increased the attractiveness of U.S. assets, driving the Dollar higher against major currencies.
Data supplied by GC Partners