Created on February 10, 2025

• The British pound has been all over the place against the Japanese yen during trading on Friday as risk appetite is pretty much all over the place.
• There is an interesting fundamental dichotomy between these two countries at the moment in the sense that the Bank of Japan is fighting inflation and likely to tighten monetary policy.
• Although we don’t really know what that looks like working from a very low base to begin with.

But at the same time, we had the Bank of England on Thursday cut rates by 50 basis points, and there were several members, I think two out of the nine or three out of the nine were looking to cut even deeper. So that being said, it looks like the Bank of England is probably on a rate cutting cycle, and that will continue to work against the British pound in general.

However, if the Japanese yen starts to lose strength, what I think is that the British pound with its higher interest rate swap is going to continue to attract inflows. And therefore, I would expect some type of recovery if we did in fact see the Japanese yen fail against other currencies.

What Could Get Me Bullish

In this pair, I think a daily close above the 190 yen level would get the market in an upward move probably towards the 50 day EMA, presently sitting around the 193 yen level. If we break down below the lows of the candlestick for Friday, then 185 yen is your next support level. And I think that would of course be tested. In general, I would expect a lot of noisy trading in this area as the market will continue to have to try to gauge where both of these central banks are currently heading.

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Forex pairs & markets covered in this week’s weekly forex forecast & forex analysis: 

Forex pairs & markets covered in this week’s Weekly Forex Forecast & Forex Analysis:

USD (DXY), EUR, GBP, CHF, JPY, CAD, AUD & NZD.

Crude Oil, EUR/USD, GBP/NZD, GBP/CAD, EUR/GBP, NZD/JPY, AUD/JPY, EUR/JPY, NZD/CAD, AUD/CAD, EUR/CAD.

Gold analysis – XAU/USD and Silver analysis – XAG/USD.

Created on February 10, 2025

• Over the last two trading sessions, the GBP/USD currency pair relinquished most of its upward rebound gains, reaching the resistance level of 1.2550.
• Thus, experienced selling pressure that pushed it down to the support level of 1.2376, where it closed the trading week.
• The pair’s recent performance has been influenced by the Bank of England’s announcement, the US jobs data, and investor sentiment regarding the US administration’s imposition of tariffs on major global economies.

Bank of England Cuts Rates and Growth Outlook

In a significant event last week, the Bank of England cut its forecast for UK economic growth this year by half and lowered its benchmark interest rate by 25 basis points to 4.5%, its lowest level since mid-2023.

Obviously, this decision was widely expected in financial markets. the bank now expects the UK economy to grow by just 0.75% this year, down from its previous forecast of 1.5% just three months ago. If this turns out to be remotely accurate, it would be deeply disappointing news for Britain’s new Labour government, which has made growth its top priority as it boosts living standards and generates funds for cash-strapped public services. With growth proving difficult to achieve, the party’s popularity has fallen sharply since its election victory in July.

Financial markets remain uncertain about how many more cuts will be made this year, with the Bank also forecasting higher-than-expected inflation over the next few months – it expects inflation to hit 3.7% sometime in the first half of the year, before drifting back towards its 2% target. Against this backdrop of growth and inflation, Bank Governor Andrew Bailey said the outlook for the UK economy remains uncertain, and uncertainty could increase if US President Donald Trump follows through on his tariff threats.

Trading Tips:

Keep in mind that sterling is a risk currency, and its gains will not improve without a return to confidence in the future of global growth and the performance of the new British government.

Expectations for the Bank of England’s Policy in 2025

In this regard, according to Deutsche Bank. The Bank of England is likely to cut interest rates five times in 2025. For his part, according to Sanjay Raja, chief economist at Deutsche Bank, the Bank of England is ready to implement multiple rate cuts throughout 2025. In its latest research note, Deutsche Bank now expects five rate cuts this year, up from its previous forecast of four.

Last week, the Bank of England’s Monetary Policy Committee cut interest rates by 25 basis points to 4.5% as part of its easing cycle and lowered its economic growth forecasts while raising its inflation forecasts. Despite inflation expected to reach 3.7% this year, the analyst said, “the door remains wide open for further rate cuts” given the prevailing economic conditions and mixed inflation outlook. The minutes of the latest Monetary Policy Committee meeting revealed divisions within the committee, with seven members supporting a quarter-point cut and two members calling for a more aggressive 50 basis point cut.

Surprisingly, Catherine Mann joined Swati Dhingra in voting for a faster pace of rate cuts of 50 basis points. The analyst noted that “weaker activity and lower demand for labour are likely to reduce wage pressures as well as firms’ pricing power.”

Given the economic conditions, Deutsche Bank expects the Bank of England to deliver another rate cut in May, a shift from its previous forecast of no rate cuts in the second quarter of 2025. This would be followed by three more cuts in the second half of the year, likely in August, November and December, bringing the total number of cuts in 2025 to five.

Technical Analysis for the GBP/USD pair today:

The performance on the daily chart above still strongly confirms the extent of bears’ control over the direction of the GBP/USD pair. The technical indicators, led by the RSI and MACD, are still down and have more room before moving towards strong oversold levels. Accordingly, the bears may have the opportunity to move towards the support levels of 1.2290 and 1.2170 respectively, and from the last level, the strongest move for the bears is the next psychological support 1.2000. On the other hand, and in the same time frame, there will be no break of the downtrend without first moving towards the resistance levels of 1.2600 and 1.2740 respectively.

The GBP/USD will remain under pressure until the reaction to the announcement of the US inflation figures and the testimony of the US Federal Reserve Governor Jerome Powell.

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• EUR/USD trades above 1.0300 in the European morning on Monday.
• US President Trump’s tariff threats could limit the Euro’s upside.
• ECB President Christine Lagarde will speak before the European Parliament later in the day.

EUR/USD holds steady above 1.0300 after starting the week under modest bearish pressure. The near-term technical outlook suggests that buyers remain hesitant.

January labor market data and US President Donald Trump’s comments on trade policy helped the US Dollar (USD) gather strength heading into the weekend, causing EUR/USD to push lower late Friday.

The Bureau of Labor Statistics (BLS) reported that Nonfarm Payrolls (NFP) rose by 143,000 in January, missing the market expectation for an increase of 170,000. On a positive note, November’s increase of 256,000 were revised higher to 307,000, while the Unemployment Rate edged lower to 4.1% from 4% in December. In the meantime, US President Donald Trump said that he will announce “reciprocal tariffs” on many countries this Tuesday or Wednesday. Additionally, Trump announced over the weekend that he plans to impose 25% tariffs on all steel and aluminum imports into the US.  

French Foreign Minister Jean-Noel Barrot responded to Trump early Monday, noting that France and its European partners should not hesitate to defend their interests in the face of the US tariff threats.

The economic calendar will not feature any high-tier data releases on Monday. Later in the day, European Central Bank (ECB) President Christine Lagarde will brief the European Parliament on the state of European and global economic affairs and the ECB’s activities. 

The uncertainty surrounding EU-US trade relations could make it difficult for the Euro to find demand in the near term.

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart stays below 40, highlighting the bearish stance. On the downside, 1.0290-1.0300 (Fibonacci 23.6% retracement of the latest downtrend, round level) aligns as first support area before 1.0250 (static level) and 1.0200 (round level, static level).

In case EUR/USD rises above 1.0350-1.0360 (Fibonacci 38.2% retracement, 200-period Simple Moving Average) and flips that area into support, technical buyers could take action. In this scenario, 1.0400 (Fibonacci 50% retracement) and 1.0440 (Fibonacci 61.8% retracement) could be seen as next resistance levels.

Copper price formed strong bullish rally after confirming breaching 4.3300$ barrier, surpassing the first main target at 4.5400$ to settle above 50% Fibonacci correction level.

Also, the major indicators provide the positive momentum to assist to renew the bullish attempts, to expect achieving additional gains by rallying towards 4.6800$ soon, followed by reaching 4.8100$ on the medium term basis.

The expected trading range for today is between 4.5000$ and 4.6800$

Trend forecast: Bullish

The EURJPY pair continue to form negative trades by crawling below 157.25 recently, to notice surpassing the negative target at 156.20 and suffering additional losses by touching 155.60 this morning.

The correctional bullish rebound towards 156.65 won’t affect the main bearish track that depends on 160.25 level forming the major barrier, also, the major indicators continue to provide the negative momentum to force the price to form new negative waves and target 155.10 followed by reaching the historical support at 154.40.

The expected trading range for today is between 155.10 and 157.30

Trend forecast: Bearish

February 9, 2025 – Written by David Woodsmith

STORY LINK GBP/USD Forecast: Dollar Survives US Jobs Test, Pound Blocked at $1.2500

The dollar dipped in immediate reaction to the latest US employment report, but quickly regained ground amid firmer underlying data and a smaller than expected benchmark revision.

At this stage, markets do not expect US interest rates will be cut below UK rates over the remainder of this year.

The Pound to Dollar (GBP/USD) exchange rate spiked to near 1.2500 before a rapid retreat to 1.2425.

The Pound to Euro (GBP/EUR) exchange rate settled just below the 1.2000 level amid position adjustment into the weekend.

US non-farm payrolls increased 143,000 for January compared with consensus forecasts of around 170,000, although there was a significant upward revision to the December gain to 307,000 compared with the flash reading of 256,000.

The unemployment rate edged lower to 4.0% from 4.1% previously.

Average hourly earnings increased 0.5% on the month compared with expectations of 0.3% with the annual increase holding at 4.1%.

The BLS also announced annual benchmark revisions with a decline in payrolls of 598,000 over the year, although this was below market expectations of around 800,000.

According to Peter Cardillo, Chief Market Economist at Spartan Capital Securities; “Basically, it’s a report that raises inflation and inflation fears. It means the Fed will probably continue with its wait-and-see attitude, and that wait-and-see might actually have to be longer than perhaps what the market is expecting.”

Markets consider that the chances of a rate cut by June are only just above 50% with the most likely outcome only one cut this year.

MUFG commented; “if there is a knee-jerk drop in yields and the dollar on a weaker print, the one-off risks that may have impacted the data and the FOMC’s strong stance for a pause suggests to us that the move could quickly reverse.”

Domestically, Bank of England MPC member Pill stated that there is an on-going disinflation process in the UK, but added that pay disinflation was not as strong as thought in November.

As far as inflation is concerned, Pill stated that he was optimistic that an upward blip in inflation this year will not lead to second-round effects, but he did state that the bank needed to be vigilant.

He pointed to stagflation risks with comments that underlying pressures remain elevated, but that activity is weaker than expected.

Pill sees scope for gradual and careful rate cuts and he stated that this acts against cutting rates by 50 basis-point increments.

Following Pill’s comments, markets were slightly more cautious over the outlook for three rate cuts this year.

Scotiabank still expressed some reservations over the UK outlook; “BoE forecasts for weak growth and higher inflation may add to concerns that Chancellor Reeves fiscal plans may be disrupted by the sluggish economy.”

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Key Economic Data Fuels BoJ Rate Hike Speculation

Economic data from Japan, including wage growth and household spending, have intensified market expectations for a BoJ policy move. Traders should now turn their attention to upcoming data releases, including machine tool orders and producer prices, which may offer more clues on Japan’s economic outlook.

On February 12, machine tool orders will provide insights into Japan’s industrial demand environment. Economists forecast orders to rise 1.6% year-on-year in January, down from 11.2% in December.

A smaller-than-expected increase may signal a pullback in business investment and industrial production. Downward trends could indicate weaker employment across the manufacturing sector, potentially affecting wage growth. Softer wage growth could curb consumer spending and dampen demand-driven inflationary pressures.

Conversely, larger-than-expected demand for tools could suggest robust production, supporting the labor market and wage growth, a key metric for the BoJ.

Japan Producer Prices and the BoJ Rate Path

While economists consider machine tool orders a barometer of Japan’s manufacturing sector, producer prices will likely impact the USD/JPY pair more. Producer prices are a leading indicator of inflation since producers adjust prices according to demand.

Economists expect producer prices to rise 4% year-on-year in January, up from 3.8% in December.

The GBPCAD price lost the positive momentum recently after reaching 1.8160 level, to activate the correctional bearish track and achieve some gains by declining towards 1.7850, approaching the additional support at 1.7800.

Note that holding within the bullish channel and the consolidation of the MA55 near the mentioned additional support line will reinforce the chances of renewing the bullish attempts, to expect rallying towards 1.7980 soon, followed by attempting to renew the pressure on 1.8070 obstacle.

The expected trading range for today is between 1.7865 and 1.7980

Trend forecast: Bullish