Spotlight on the ECB

Key Headline:

·      Fed holds steady

·      BoC lowers base rates

·      Markets expect the ECB to cut interest rates by 25bp later today

Recap

·      The Bank of Canada cut interest rates by 25bp, bringing the headline rate down to 3%. The bank dropped its forward guidance, citing risks from potential tariffs by Donald Trump, which could slow growth and drive inflation higher. As a result, CAD weakened slightly. If tariffs are imposed over the weekend, further depreciation is expected.

·      Meanwhile, the Federal Reserve held rates steady, with Chairman Powell emphasizing that only clear and undeniable economic weakness would justify further cuts. Markets are still pricing in two rate cuts this year—25bp in June and 25bp in December.

Today’s Rates

Today's Interbank Rates at 09:57 am against GBP movement.

GBP>EUR – 1.1952

GBP>USD – 1.2437

EUR>GBP – 0.8366

EUR>USD – 1.0405

GBP>CAD – 1.7917

GBP>AUD – 1.9967

GBP>SEK – 13.700

GBP>CHF – 1.1284

GBP>PLN – 5.0252

GBP>AED – 4.5641

GBP>HKD – 9.6817

GBP>ZAR – 23.030

Today’s Key Takeaways

·      Markets have fully priced in the ECB's 25bp rate cut today, bringing the headline rate down to 2.75%. However, the accompanying statement will be key in shaping expectations for future policy moves.

·      Recent data suggests economic activity in Europe is improving, with rising inflation prompting markets to scale back expectations for rate cuts this year. If Lagarde’s comments align with this outlook, we could see a further reduction in expected cuts—potentially strengthening the EUR. Additionally, any remarks on the threat of Trump’s tariffs on Europe and their implications for monetary policy will be closely watched.

·      This morning, the EUR is slightly weaker following softer-than-expected German Q4 GDP data.



30th January 2025

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