Forex Market Forecast for January 2025

With the year drawing to a close and the “Santa rally” not materialising, investors will now be looking for the next big moves as January gets underway. However, be aware that things may not fully get going until the week beginning January 6. Here’s what to watch this month:

• The USD: The Federal Reserve cut rates by the expected 25bps in December, but they signalled a slower, shallower rate cut path which could continue to impact the USD in January.
• Trump Takes Office: President-elect Donald Trump will take office on January 20. With the threat of tariffsThe, this could signif some FX pairs and currencies.
• The Euro: The ECB also cut rates by 25bps in December, but could the next interest rate cut by the European Central Bank take longer to come next time around?

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US Dollar (USD)

While NFP data will be released on January 10, most USD watchers may still be focused on the Federal Reserve’s 2025 rate cut path following the latest meeting. With inflation remaining sticky and President-elect Trump’s policies potentially providing uncertainty, there is a possibility the USD could strengthen in January as investors look to safe haven assets until there is more of an understanding of what the next few months may look like.

Key Levels:

• EURUSD: Higher – 1.0200, Lower – 1.0520
• GBPUSD: Higher – 1.2800, Lower – 1.2350
• USDJPY: Higher – 161.65, Lower – 154.80

Euro (EUR)

As mentioned above, the ECB cut rates in December. However, recent comments from ECB Governing Council member Robert Holzmann suggest there could be a longer wait for the next cut, which could result in a slightly stronger in the medium term.”I don’t see any interest rate hikes at the moment. What could happen, though, is that one takes more time until the next interest rate cut,” Holzmann reportedly told Austrian newspaper Kurier. Nonetheless, Trump’s potential tariffs could impact the EU and pressure the euro currency.

Key Levels

• EURUSD: Higher – 1.0200, Lower – 1.0520
• EURGBP: Higher – 0.8385, Lower – 0.8225

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British Pound (GBP)

The Bank of England maintained rates in December, with stubborn inflation impacting the potential rate cut path. Yet, October’s budget announcement and the possible impact on the UK economy may dictate the GBP’s direction in early 2025. Businesses have already noted the potential impact, with Shoe Zone recently announcing some store closures and Currys stating price increases will be “inevitable.” As a result, it would not be surprising to see the GBP come under pressure further against the USD in early 2025, maintaining the downtrend that began in September.

Key Levels:

• EURGBP: Higher – 0.8385, Lower – 0.8225
• GBPUSD: Higher – 1.2800, Lower – 1.2350

Japanese Yen (JPY)

The Bank of Japan kept interest rates unchanged in December. The USDJPY rallied following the announcement and hit its highest level since July around the Christmas holidays. Regardless, Governor Ueda offered few clues on how soon rates could rise. The USD/JPY is currently above the 157.00 level. Fawad Razaqzada, a market analyst at Forex.com said that 157 to 160 are the “intervention territories.” Overall, the near-term direction is higher. Nevertheless, with inflation rising to 2.9% in November and remaining above the 2% target, the BoJ may look to raise rates, potentially helping the yen to strengthen. While that may not occur in January, it is something to keep an eye on.

Key Levels

• USDJPY: Higher – 161.65, Lower – 154.80
• EURJPY: Higher – 167.50, Lower – 156.00

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