FX weekly forecast: Hawkish Fed to revive the US dollar?
Philip McHugh January 27th 2025 - 2 minute read
After a bruising session for the US dollar following Donald Trump’s return to office, we could see the ‘greenback’ mount a recovery this week if the Federal Reserve defies the President by maintaining a hawkish outlook on US interest rates.
Pound (GBP)
Notable UK economic releases are in short supply this week, which may leave the pound (GBP) exposed to wider market trends. A cautious mood could see Sterling come under pressure.
Euro (EUR)
The European Central Bank’s (ECB) latest interest rate decision will be in the spotlight for EUR investors this week. The ECB is widely expected to deliver another rate cut and could pile pressure on the euro (EUR) if the bank also signals that more easing is needed.
US dollar (USD)
The Federal Reserve is widely expected to leave interest rates on hold at its meeting later this week, leaving the focus on the bank’s forward guidance. If the bank appears in no rush to cut rates, the US dollar (USD) is likely to strengthen. Although a slowdown in US GDP in the fourth quarter could cap any potential gains.
Australian dollar (AUD)
This week sees the publication of Australia’s latest inflation figures. Price growth is forecast to have decelerated again in the last quarter of 2024. This may stoke Reserve Bank of Australia (RBA) rate cut bets and weaken the Australian dollar (AUD).
South African rand (ZAR)
In addition to market risk appetite, the South African rand (ZAR) is also likely to be influenced by the South African Reserve Bank’s (SARB) interest rate decision this week. An expected rate cut may act as a headwind for the rand in the second half of the week.
Canadian dollar (CAD)
The Bank of Canada (BoC) is expected to cut interest rates again when it meets later this week. Coupled with Trump’s tariff threats against Canada, this could trigger significant weakness in the Canadian dollar (CAD).
New Zealand dollar (NZD)
The New Zealand dollar (NZD) is likely to remain sensitive to market risk appetite this week but could attract some support if domestic business sentiment improves as forecast.
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Written by
Philip McHugh