Volatility Strikes Back

Going into 2025, we are suggesting that all clients with currency needs are fully prepared, volatility has returned in the form of Trump, global tensions, rate cutting cycles being undermined by sticky inflation and domestic policies being shifted and possibly pressuring state finances.
GBP/USD falling back to recent lows, alongside EUR/USD which is around 1.0300

USD: Volatility strikes back – 10minutes ago the USD started rallying thanks to this headline:

US President-elect Donald Trump is considering declaring a national economic emergency to allow for a new tariff program, CNN reported, citing four sources familiar with the matter on Wednesday. "The declaration would allow Trump to construct a new tariff program by using the International Economic Emergency Powers Act, known as “IEEPA,” which unilaterally authorizes a president to manage imports during a national emergency," the report read.
Ahead tonight we have Fed minutes and we even have a few Fed speakers in view.

The market is pricing in a few more cuts in rates throughout 2025, but in an environment such as this, the Fed will have it’s work cut out to cut a steady path.

EURO: The ECB is widely expected to cut rates 4 times in 2025. However, inflation data this week across Europe has shown inflation at domestic levels is NOT falling as hoped, and on a pan-European level it is not declining as the ECB hoped. Sticky inflation rubbing up against a well-communicated rate-cutting cycle might well start to erode the market’s confidence in the ECB to effectively deal with economic headwinds. This is all before Trump takes his seat as President and could possibly follow through on his promises to impose high tariffs on the EU.

GBP: A standout performer in 2024, holding ground around 1.2000 vs EUR, but floundering near 1.2350 against the USD. As UK 10y yields hit levels ABOVE those seen after Liz Truss’s budget, the strains on UK finances might come to pass and turn investors away from sterling.