March 19, 2025

“This week’s central bank decisions kick off today with the Bank of Japan and the Federal Reserve. The constantly changing policy outlook has cast a shadow of uncertainty over policymakers in recent months – something we expect to be a common theme in their rhetoric.”

Tim Hallinan – Trading Director

USD

The beaten dollar is mildly stronger this morning heading into today’s Federal Reserve rate decision. There were several interesting developments yesterday. The first were comments from Treasury Secretary Bessent on the April 2 tariffs, where it seems that the administration has simplified its proposed reciprocal tariff regime to give each country a number to apply broadly to their goods, through an assessment of that country’s direct trade barriers and things like VAT. The details on this are going to be critical in the coming weeks and could pose some upside risk for the greenback if they worsen the brewing trade wars. The sanctions regime is set for a shake-up, meanwhile, with Trump concerned it weakens the dollar’s haven status. The President also traded halting its arms shipments to Ukraine for a 30-day break on energy infrastructure attacks by Russia, during a much less successful call with Putin than he had probably hoped for.

With all the uncertainty swirling around the US and global economies, Fed Chair Powell could probably do without today’s rate decision, where rates are almost certain to be held steady. But the FOMC will nevertheless make an attempt at the impossible task of forecasting inflation, unemployment, and interest rates over the next couple of years. Powell has generally been more upbeat about the economy than the markets, and if that is the general view within the Fed then that could support the dollar.

GBP

Sterling’s bullish momentum has so far not been sufficient to make a sustained break above the 1.30 handle. It has cooled slightly this morning, and it might take some dovish commentary at the Fed to take that extra step higher. The dollar remains in charge today, but it is all about the pound tomorrow. A wage growth print for January is expected at 5.8% early in the morning, and the consensus on the closely watched private wages ex. bonus figure is 6.1%. This stickiness rules out another rate cut for now – the focus will be on the future.

EUR

The euro is sticking to the 1.0850-1.0950 range this week as markets prepare for a slew of central bank meetings over the next two days. The lack of progress towards peace in yesterday’s call between Trump and Putin, alongside a re-escalation of tensions in the Middle East, appear to have the euro trading on the slightly softer side this morning. The news from the eurozone today will be concentrated on speeches from Guindos, Villeroy, and Centeno today, while rate decisions in the US, Switzerland, Sweden, and the UK will make the major crosses interesting. Merz’s debt reform plan was approved by the Bundestag, as expected, and there was little extra optimism to be squeezed into the euro’s valuation, as expected. The market has so far shown little concern for any impact on debt sustainability from the extra borrowing, but Fitch commented yesterday that Germany’s AAA rating would be at risk in the long term if the spending was not offset by other cuts or by sustained growth improvements.

Markets

US stocks resumed their selloff yesterday as tech stocks led a 1.7% decline in the Nasdaq, while European indexes made some tentative gains, particularly in Germany as a debt reform package was put through parliament.

Main Economic Events (All Times CET)

3:25am: Bank of Japan Rate Decision
7:00pm: Federal Reserve Rate Decision

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