Home Daily Commentaries European markets watch closely as peace talks tentatively begin between Russia and Ukraine

European markets watch closely as peace talks tentatively begin between Russia and Ukraine

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.

| Wednesday 19 March, 2025

Daily Currency Update

A vote by Germany’s parliament to overhaul government spending was passed yesterday allowing the single currency to gain further ground on advances made last week. Germany’s approval of plans for a massive spending surge throws of decades of fiscal conservatism in the hopes of reviving economic growth and scaling up military spending for a new era of European collective defence. The German sentiment index (ZEW) also improved more than expected in March underpinning the Euro.

Britain’s centre-left government outlined plans yesterday to curb spiralling welfare costs as it attempts to juggle a difficult set of competing objectives; saving public money, incentivising work and protecting the most vulnerable. To outline the scale of the problem the UK has a population of 68m and between England, Scotland and Wales there are 9.3m people unemployed who are of working age. This represents a rise of 713,00 since 2020 alone.

Industrial production in the US expanded by 0.7% on a monthly basis in February. This reading followed a 0.3% increase in January and came in much better than market expectations for a 0.2% increase. Manufacturing output rose by 0.9% boosted by a jump of 8.5% in the index for motor vehicle and parts. The Fed noted that capacity utilisation rose to 78.2%, a rate that is just short of long-term averages.

 

Key Movers

The Euro looks to have priced in the success of the spending reform in Germany and appears close to peak market optimism on the fiscal boost. It is important to note that Germany does still not have a Government and coalition talks may prove tricky. Geopolitical risks also remain as markets will also be keenly watching as events unfold between Russia and the Ukraine to see if a real and purposeful ceasefire can be structured.

In the UK, pay increases granted by UK employers have fallen back in line with inflation for the first time since October ’23, news that will be welcomed by the Bank of England. Analysts said that “the stabilisation of pay awards reflects a more cautious approach from employers as they look to balance wage growth and rising costs”. The Bank of England meet to set interest rate policy later today and the market expects no change in borrowing costs.

The Federal Reserve convened yesterday for its two-day monetary policy meeting, which is expected to culminate later today with the central bank leaving is benchmark interest rate unchanged. The primary drivers of this likely decision are that further progress is needed on inflation and the Trump administrations' tariffs. Presently markets do not know where tariffs stand, whether they’re on, whether they’re off. This uncertainty has led to a 4% drop in the US Dollar over the last month alone.

 

Expected Ranges

  • GBP/USD: 1.2945 - 1.2995 ▲
  • GBP/EUR: 1.1870 - 1.1915 ▲
  • GBP/AUD: 2.0455 - 2.0505 ▲
  • EUR/USD: 1.0885 - 1.0940 ▲

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.