March 20, 2025

“A flood of central bank decisions is taking centre stage today, with policymakers attempting to make sense of the global economic uncertainty. The central theme is one of uncertainty, and most are opting to stay on hold while they wait out Trump’s initial tariff policies.”

Sam Cornford – Head of Trading

USD

The Fed revised its inflation projections up and its growth forecasts down as it held rates yesterday, but opted to describe tariff-fuelled inflation as ‘transitory’. That is a word that will make some investors shudder – it was how they falsely interpreted the initial inflationary surge in 21/22 – yet the market was generally quite pleased at the confirmation that rate cuts were still on the agenda for this year and could even come even more quickly if growth starts to drop off. Initially that made it a dollar-negative event, but that is being unwound this morning. As far as central bank decisions go, this was somewhat irrelevant, because everyone – central bankers, governments, investors, consumers, businesses – is sat in an uncertain limbo as they wait to see what Trump decides and how this impacts the economy. Powell himself said ‘I don’t know anyone who has a lot of confidence in their forecasts now’. Trump gave his opinion on Truth Social a bit later, unsurprisingly arguing that rates need to come down immediately.

The focus today is on three European central banks. Switzerland have cut, Sweden have held, and the Bank of England is expected to keep rates unchanged later. In the US, we also get the weekly jobless claims figure and the leading index.

GBP

Some solid ONS labour data this morning is a timely reminder of why the Bank of England is set to hold rates steady today. Long-running data quality issues mean that we must take the data with a pinch of salt, but wage growth cooled only slightly to 5.8% and payrolls are not falling off, despite many surveys and the BoE’s Catherine Mann warning of an impending slump in hiring. Of course, the last meeting also saw the projection for inflation include a peak at 3.7% this year. The vote split is expected at 7-2 in favour of a hold, with Mann and perma-dove Dhingra those likely to vote for a cut. If Alan Taylor makes it a 6-3 split, that would probably be a dovish signal for the pound.

EUR

The euro has weakened some 0.8% since its peak on Tuesday, having cooled off against both the dollar and the pound over the last couple of days. With peak optimism around Germany’s debt reforms already priced and the dollar mounting a small recovery, it never managed to make a real effort at the 1.10 barrier. Lagarde is speaking at the EU Parliament this morning, and has so far repeated her mantra that the disinflation process is ‘well on track’ – markets had perhaps expected that it would be an opportunity to consolidate some extra caution with vast amounts of defence spending on its way, but bets are still on for rates to be taken to 2.00% before the end of the year.

Elsewhere in Europe, the Riksbank has reiterated that it expects its cutting cycle to be over, holding rates at 2.25% and arguing that the job is done on inflation. Policymakers noted that ‘uncertainty is unusually high’ but played down the recent inflationary uptick and appeared quite confident in the stability of their domestic forecasts. Meanwhile, the SNB continued lowering rates, taking them 25bps lower to 0.25%. The franc fell as the bank noted ‘low inflationary pressure’.

Markets

The FOMC-led stock rally yesterday looks strange, given that policymakers revised their inflation projections up and their growth projections down. Yet the market has appeared to pounce on the notions that a) the inflationary uptick would pass, and b)  the Fed would be flexible and could cut rates much more quickly if needed.

Main Economic Events (All Times CET)

8:00am: UK Wage Growth
9:30am: Swiss National Bank Rate Decision
9:30am: Riksbank Rate Decision
1:00pm: Bank of England Rate Decision

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