FX Outlook
Daily FX Report

Daily FX Report

Central Bank Meetings in the Spotlight

Wed 19 March 2025 07:00

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Daria Efanova Head of Research

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EUR / USD

EUR/USD continues to demonstrate bullish momentum, trading above the 1.0900 level, with technical indicators supporting further upside potential. Germany's anticipated approval of an infrastructure and defence spending package has emerged as an additional catalyst for euro strength, boosting confidence in European growth prospects and attracting capital flows from US markets.

The dollar faces headwinds from disappointing US economic data, while markets are pricing in approximately 60 basis points of Federal Reserve rate cuts this year. While the Fed is expected to hold rates today, policymakers' dot plot and Powell's tone will be crucial in guiding the dollar narrative. Moreover, markets are awaiting to hear insights on the impact of tariffs on monetary policy's path.

While the RSI reading of 73 suggests overbought conditions, substantial buying interest is near 1.093, and the ECB's relatively hawkish stance continues to support the euro's strength, with potential for movement toward the psychological 1.10 level.

USD / JPY

USD/JPY faces growing headwinds as monetary policy divergence between the Federal Reserve and Bank of Japan takes centre stage. Despite the BOJ expected to maintain rates at 0.5%, strong wage growth and inflation in Japan suggest the potential for monetary tightening, with markets anticipating approximately 30bps worth of hikes by September.

The currency pair has recently tested the psychological 150 level, with technical analysis indicating the 20-day SMA at 148.86 serving as immediate support. However, prices encountered strong selling pressure at 149.90, leading to a sharp reversal toward 149.10.

The traditional safe-haven status of the yen appears to be diminishing despite ongoing geopolitical tensions and trade war risks that typically drive safe-haven flows. The resistance at 150.00 is crucial for assessing the pair's near-term outlook. We expect this level to be retested today.

GBP / USD

GBP/USD has reached a significant psychological milestone of 1.3000, marking its highest level since November 2024, primarily driven by widespread dollar weakness and shifting market sentiments. The currency pair's strength comes despite the UK's economic challenges, including a surprise contraction in January GDP and the OECD's downward revision of Britain's 2025 growth forecast to 1.4% from 1.7%.

Technical indicators present a bullish outlook as the pair trades above all major moving averages, with the 200-day SMA at 1.2800 providing robust support. The immediate market focus centres on two crucial central bank meetings - the Federal Reserve on Wednesday and the Bank of England on Thursday, with both expected to maintain current rates while providing critical forward guidance.

The pound's relative strength is supported by expectations that the Bank of England will maintain a more hawkish stance compared to other major central banks, with markets pricing in just two rate cuts for 2025 versus potentially three from the Fed. However, sterling faces potential headwinds from upcoming UK fiscal tightening, with Chancellor Rachel Reeves expected to announce spending cuts in the Spring Statement.

Technical analysis indicates that while the GBP/USD pair faces strong resistance in the 1.3000-1.3050 zone, a breakthrough could pave the way for further gains toward the 1.3100-1.3150 region.

Economic Calendar

19032025

Disclaimer

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A large number of views are being generated at all times and these may change quickly. Any valuations or underlying assumptions made are solely based upon the author’s market knowledge and experience.

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