Global Watch January 2025

The Fed and ECB both lowered interest rates by 100bps over the second half of 2024 to 3.0% and 4.25%-4.5% respectively. However, while increased concern about the Euro area growth outlook means the ECB seems set to cut the deposit rate by another 100bps this year, the continuing resilience of the US economy as well as the potential impact of president-elect Trump’s prospective economic polices is likely to limit the room for Fed rate cuts relative to previous expectations. In the UK, still elevated wage and underlying price pressures means the Bank of England is likely to continue its gradual approach to lowering interest rates having cut by just 50bps to date. The reassessment of the outlook for Fed and ECB policy has contributed to a sharp fall in the euro-dollar exchange rate, which has shed 10 cents to $1.02 since September, with  the risks weighted to further weakness. Sterling has also fallen sharply against the dollar since September, shedding 12 cents to around $1.22. About 3 cents of this has come in early January amid a sell-off in UK bonds and equities, with the pound also losing ground to the euro, falling to £0.84 from a multi-year high of £0.82 in mid-December.

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Bank of Ireland_Global Watch_January 2025