18/12/2024
Market Focus on US Fed Rate Cut and Key Central Bank Decisions: EUR/USD and GBP/USD Outlooks
US Fed Decision
The Federal Reserve’s decision today is expected to include a 25-basis-point rate cut, reducing the federal funds rate to a target range of 4.25%–4.50% (December 18th at 19:00 GMT). This marks the third consecutive rate reduction, as the central bank aims to balance supporting economic growth with maintaining inflation within its target range. In addition to the rate announcement, markets will closely scrutinize the updated Summary of Economic Projections (SEP) and the dot plot, which may offer valuable insights into the anticipated trajectory of interest rates through 2025. Fed Chair Jerome Powell’s press conference following the decision will be pivotal, with investors seeking clarity on the Fed’s stance regarding the pace of future monetary easing. A cautious or less dovish tone from Powell and other officials could bolster the US Dollar, driven by expectations of reduced liquidity and sustained higher yields, while a more accommodative outlook could weigh on the currency and shift focus to riskier assets. The decision and subsequent commentary are set to significantly influence market dynamics in the days ahead.
EUR/USD Outlook
The EUR/USD pair holds near 1.0492, with markets showing caution ahead of the Federal Reserve’s (Fed) December policy decision. Today’s decision will likely play a critical role in shaping the near-term trajectory of the EUR/USD pair. Market participants will particularly focus on the updated economic projections and Fed Chair Powell’s comments for guidance, which could create significant volatility for the EUR/USD pair.
On the European side, the ECB recently implemented its fourth consecutive 25 basis point rate cut, signaling continued monetary easing as inflation trends closer to the 2% target. However, policymakers emphasize that further rate decisions will be data-dependent. The ECB faces challenges from a fragile Eurozone economy, highlighted by subdued manufacturing performance, underwhelming growth in Germany and France, and heightened political uncertainty. These factors, coupled with a cautious approach to policy loosening, are likely to limit the euro’s recovery prospects.
GBP/USD Outlook
The GBP/USD pair remains near 1.2690 as traders await pivotal central bank meetings. Tomorrow, December 19th at 12:00 GMT, the Bank of England (BoE) is set to announce its rate decision. While the BoE is widely expected to keep rates unchanged, markets are attuned to any signals regarding the policy trajectory for 2025. Recent UK labor market data, showing stronger-than-expected wage growth at an annual rate of 5.2%, has reduced expectations for multiple rate cuts next year.
The Fed’s anticipated rate cut and potential hawkish tone could elevate the US Dollar, presenting downside risks for the Pound. However, the BoE’s relatively firm stance, coupled with UK inflation data due later this week, may provide support to the GBP/USD pair.
Broader Market Implications
Both EUR/USD and GBP/USD pairs are sensitive to the Fed’s and BoE’s policy announcements. Divergences in monetary policy strategies will shape currency movements, with the US Dollar potentially benefiting from its perceived resilience amid geopolitical risks and solid Treasury yields. Key upcoming data and central bank statements will be critical in determining the trajectory for these major pairs.
IMPORTANT DISCLAIMER
The information in this report is of a general nature only. It is not a piece of personal financial advice. It does not take into account your objectives, financial situation, and personal needs.
a-Quant is not responsible for your actions and recommends you contact a licensed financial advisor before acting on any information contained in this general information report.
