Home Daily Commentaries Federal Reserve policymakers agree unanimously to leave US rates unchanged

Federal Reserve policymakers agree unanimously to leave US rates unchanged

Conor Fleming
Written by
Conor Fleming

Conor Fleming

OFXpert

With 30 years of experience in the foreign exchange world, Conor spearheads initiatives to encourage businesses in Germany, Switzerland, and Austria to hedge their foreign currency risks with OFX.

| Thursday 20 February, 2025

Daily Currency Update

Figures released yesterday confirmed that UK inflation climbed to a ten month high of 3%. This will present a significant test for the Bank of England as they expect price pressures to ease throughout 2025. With a hike in employer taxes and the minimum wage increase on the way, it is tricky to see how inflation dynamics will improve in the short term. Core inflation, which excludes energy, food, alcohol and tobacco prices, rose to 3.7% from 3.2% in January. The Pound remains firm as markets digest the possibility of fewer rate cuts by the Bank of England.

ECB policymaker, Isabel Schnabel, said they are getting closer to a pause in interest rate cuts since it is no longer clear that interest rates remains restrictive and recent energy price surges could raise inflation risks. The ECB has cut rates by 125 basis points since last June and is expected to cut by another 75 basis points this year. Schnabel added that a lot of downside risk has been priced into the value of the Euro since Q3 of last year and if the pace of interest rate cuts' slows, we could see the single currency rally strongly.

The US Dollar continued to grind higher in light trading yesterday. President Trump suggested he will impose auto tariffs to the tune of 25% and similar threats for Pharma and Semiconductor chips. This has weighed on US equities and pushed the fixed income markets lower. Investors now look like they are ignoring tariff threats as Trump see-saws on the likely timing and size on an almost daily basis while the Dollar has been rather muted to these announcements this week.

 

Key Movers

The European Central Bank’s next meeting is on March 6th and markets fully expect a rate cut of 25 basis points, no policy member has openly challenged this move. There seems to be a debate looming between hawks who believe that policy rate at 2.75% is not restrictive and further cuts may not be necessary. This is contravened by members who feel rates must come lower in order to fuel growth in Europe’s economies. Overwhelmingly, ECB policymakers all agree that lowering borrowing costs further will be data dependent.

Although headline inflation in the UK recently rose to 3% there is some light for the Bank of England. What they focus almost exclusively on is services sector inflation and this is topping at 5% and looks set to fall. Monetary Policy members confirmed that this closely watched measure of inflation fell to 4.2% from 4.7% just two months ago. Some analysts are suggesting that wholesale natural gas prices are going to rise again this year and this is what has been keeping core inflation numbers elevated.

Federal Reserve minutes from their January 28th meeting showed that all participants unanimously agreed to leave interest rates in the US unchanged. Some members cited changes in trade and immigration policy as having the tendency to hinder the disinflation process, however the vast majority of Fed members believed that the dual mandate of economic growth and low inflation are broadly in balance.

Expected Ranges

  • GBP/USD: 1.2590 - 1.2640 ▲
  • GBP/EUR: 1.2050 - 1.2100 ▲
  • GBP/AUD: 1.9750 - 1.9810 ▲
  • EUR/USD: 1.0420 - 1.0470 ▲

Written by

Conor Fleming

OFXpert

With 30 years of experience in the foreign exchange world, Conor first embarked on his financial career journey as a trainee dealer in BNP Paribas in the early 90s. His professional journey also took him to New York, where he assumed the role of Head of Sales with an Irish bank for a few years. During his tenure at both banks, he was invited to several interviews on Irish television to discuss market turbulence, the factors driving volatility and insights into what could be expected as events unfolded.

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