Pound Sterling (GBP)

The British Pound faces two major risks ahead of the Bank of England’s rate decision. A “hawkish” tone, indicating rates will remain high, could strengthen the Pound by reducing expectations of future rate cuts. On the other hand, a “dovish” approach, signalling more cuts ahead, might weaken Sterling. Market sentiment on rate cuts in 2025 will be a key driver for the Pound’s movement.

Euro (EUR)

The Euro dropped after the Federal Reserve announced plans for only two rate cuts in 2025, pushing EUR/USD to its lowest close in two years. This adjustment highlighted diverging economic conditions between the Eurozone and other regions. Concerns over weaker Eurozone prospects and the appeal of higher-yielding currencies contributed to the Euro’s decline.

U.S. Dollar (USD)

The U.S. Dollar gained strength following the Federal Reserve’s 25bp rate cut and a revised outlook for 2025, reducing expected cuts from four to two. This hawkish shift, along with stronger U.S. GDP and inflation forecasts, boosted the appeal of U.S. assets, lifting the Dollar against other major currencies.