IC Markets Europe Fundamental Forecast | 25 March 2025

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March 25, 2025 14:00

IC Markets Europe Fundamental Forecast | 25 March 2025

What happened in the Asia session?

After accelerating over the past three months, rising from an annual rate of 1.5% in October to 2.2% in January, Japan’s core inflation as reported by the Bank of Japan (BoJ) remained unchanged at 2.2% in February. Price pressures have abated for now, which could nudge the BoJ to a second successive pause this year should other inflation metrics also follow suit. Another hold on rates by this central bank would cause the yen to weaken – USD/JPY was hovering around 150.50 by midday in Asia but it could resume its ascend following this morning’s core consumer inflation result.

What does it mean for the Europe & US sessions?

Business confidence in Germany has remained subdued since the final quarter of 2024 as sentiment weakened among service providers, with growing scepticism particularly in the transport and logistics sector. While companies became more optimistic in February about their outlook for the coming months, overall confidence remains historically low. With Germany planning a massive fiscal plan to boost its industries, the ifo index could see a notable improvement for the month of March – a result that could boost the euro during the European trading hours.

Moving over to U.S. inventories, the API stockpiles swelled significantly over the last couple of weeks as nearly 8.8M barrels of crude were added to inventories, a sign of weak demand in the United States. Should the API stocks continue to build further for the third consecutive week, it could place downward pressure on prices later today.

The Dollar Index (DXY)

Key news events today

CB Consumer Confidence (2:00 pm GMT)

New Home Sales (2:00 pm GMT)

What can we expect from DXY today?

Consumer confidence dropped sharply in February as reported by the Conference Board as pessimism about future expectations returned, primarily due to the ongoing trade policy uncertainties. Meanwhile, falling mortgage rates have lifted sales for new homes over the last couple of months. Sales are expected to increase from 657k in the previous month to 682k in February – this would mark the fourth successive month of higher home purchases. Should the above data post a robust set of results, it could function as an additional bullish catalyst for the greenback, after news of a more targeted approach rather than the wide barrage of tariffs soothed markets overnight.

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

CB Consumer Confidence (2:00 pm GMT)

New Home Sales (2:00 pm GMT)

What can we expect from Gold today?

Next 24 Hours Bias

Weak Bearish

The Australian Dollar (AUD)

Key news events today

No major news events.

What can we expect from AUD today?

Following Monday’s robust Composite PMI report, the Aussie stabilised on Monday before briefly climbing above 0.6300. This currency pair dipped under this level overnight but was looking to make a second attempt to clear this threshold as Asian markets came online on Tuesday.

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?

After climbing above 0.5830 last week, the Kiwi fizzled out and fell under 0.5800 last Thursday. Overhead pressures remain for this currency pair and it is likely to drift lower on Tuesday.

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 Bullish

The Japanese Yen (JPY)

Key news events today

BoJ Core CPI (5:00 am GMT)

What can we expect from JPY today?

After accelerating over the past three months, rising from an annual rate of 1.5% in October to 2.2% in January, Japan’s core inflation as reported by the Bank of Japan (BoJ) remained unchanged at 2.2% in February. Price pressures have abated for now, which could nudge the BoJ to a second successive pause this year should other inflation metrics also follow suit. Another hold on rates by this central bank would cause the yen to weaken – -USD/JPY was hovering around 150.50 by midday in Asia but it could resume its ascend following this morning’s core consumer inflation result.

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:
1. The Bank will encourage the uncollateralized overnight call rate to remain at around 0.5%.
2. 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

Strong Bullish

The Euro (EUR)

Key news events today

Germany ifo Business Climate (9:00 am GMT)

What can we expect from EUR today?

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

Weak Bearish

The Swiss Franc (CHF)

Key news events today

No major news events.

What can we expect from CHF today?

Stronger demand for the dollar has lifted USD/CHF off its March lows of 0.8750. This currency pair has gained nearly 1% since the third week of March and it looks set to grind higher as the day progresses.

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

Medium Bullish

The Pound (GBP)

Key news events today

No major news events.

What can we expect from GBP today?

The S&P Global U.K. Composite PMI rose to 52.0 in March 2025 from 50.5 in February, surpassing market expectations of 50.3, based on Monday’s preliminary estimates. While signalling only modest private sector growth, the reading reached its highest level since September, driven by the strongest expansion in the service sector since August. In contrast, manufacturing output shrank for the fifth consecutive month, posting its sharpest decline since October 2023. New order volumes also showed a stark divergence, with manufacturers reporting a steep drop in demand amid rising global economic uncertainty and potential U.S. tariffs, while service providers recorded their first increase in new work this year. The pound could see further upward momentum following Monday’s better-than-expected Composite PMI report – Cable remained elevated at the beginning of Tuesday’s Asia session, hovering around 1.2920.

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

No major news events.

What can we expect from CAD today?

The Loonie saw relatively strong inflows on Monday causing USD/CAD to drop to an overnight low of 1.4289. However, demand for the greenback could pick up as news of a more targeted approach by U.S. President Donald Trump rather than the wide barrage of tariffs removed some of the trade policy uncertainties. This currency pair was floating around 1.4310 as Asian markets came online on Tuesday.

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

API Crude Oil Stock (8:30 pm GMT)

What can we expect from Oil today?

Oil prices rose as much as 1.4% on Monday before pulling back slightly to gain 1.1% as reports on U.S. President Donald Trump’s tariffs set to come into force on 2nd April would be less severe than initially feared. News of a more targeted approach rather than the wide barrage of tariffs removed some of the trade policy uncertainties that would have dampened global economic output and demand for crude oil. However, President Trump issued an executive order against Venezuela, declaring that any country buying oil or gas from the South American nation would pay a 25% tariff on trade with the United States.

Next 24 Hours Bias

Medium Bullish

The post IC Markets Europe Fundamental Forecast | 25 March 2025 first appeared on IC Markets | Official Blog.

IC Markets Europe Fundamental Forecast | 25 March 2025

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