Executive Summary

As February 2025 unfolds, global financial markets remain highly sensitive to political and economic developments. Key currency pairs such as EUR/USD, GBP/USD, GBP/EUR, GBP/JPY, USD/JPY, USD/CAD, and EUR/JPY are navigating volatility driven by a combination of geopolitical events, central bank policies, and macroeconomic indicators. Notably, the recent inauguration of Donald Trump for his second presidential term is reshaping global economic sentiment. This report highlights key upcoming events and their potential impacts on major currencies, focusing on North America, EMEA, and global dynamics.

Key Events and Analysis

Donald Trump’s Second Inauguration and Its Global Effects
The return of Donald Trump to the White House in January 2025 has reintroduced market uncertainty, especially regarding trade policies and fiscal measures. Key aspects to monitor include:

1. Potential Trade Policy Changes: Renewed focus on "America First" policies may prompt higher tariffs or renegotiated trade deals. Markets anticipate USD strength if protectionist policies are perceived as boosting domestic manufacturing but expect weakness if global trade volumes decline.
• EUR/USD: Increased trade tensions between the US and EU could pressure the euro, potentially leading to a decline in EUR/USD.
• USD/CAD: Heightened trade disputes may adversely affect the Canadian dollar, especially given Canada’s heavy reliance on US trade.
2. Fiscal Stimulus and Infrastructure Spending: Announcements of aggressive fiscal spending could bolster US growth expectations, boosting the USD, especially against lower-yielding currencies such as JPY and EUR.
3. Interest Rate Projections: Market expectations for Fed policy remain central. Hawkish comments from Federal Reserve officials would likely strengthen USD across the board, with notable impacts on USD/JPY and EUR/USD.

EMEA Economic Landscape

• Europe: The eurozone faces tepid growth, with recent PMI data reflecting modest expansion in manufacturing and services. Key risks include high energy costs and persistent inflationary pressures.
• EUR/USD: Soft growth in the eurozone, coupled with a more hawkish Fed, could push EUR/USD lower. However, dovish comments from the ECB would amplify this effect.
• GBP/EUR: Diverging central bank policies may keep this pair range-bound but volatile, with a slight upside bias for the pound if the Bank of England remains hawkish.
• Middle East & Africa: Oil markets remain a critical driver for currencies linked to commodity prices. Elevated crude prices could strengthen oil-exporting nations’ currencies while weighing on European economies due to higher energy costs.
• USD/CAD: Rising oil prices typically support CAD strength, but USD/CAD could remain volatile if US growth expectations diverge significantly from global trends.

North American Economic Outlook

• United States: The US economy remains resilient, supported by robust labour markets and consumer spending. However, potential fiscal stimulus from the Trump administration adds an inflationary risk, which may prompt a hawkish Fed stance.
• USD/JPY: A hawkish Fed alongside higher US Treasury yields would likely strengthen the USD against the yen, particularly as the Bank of Japan maintains its ultra-loose policy stance.
• GBP/USD: The pound may struggle against the USD if US growth outpaces the UK or if risk-off sentiment favours the dollar.
• Canada: Slowing housing markets and regional economic disparities are headwinds for CAD, but elevated oil prices and strong US demand provide support. Balancing these factors will be key for USD/CAD.

 

Currency Pair-Specific Forecasts

• EUR/USD
• Key Events: ECB monetary policy meeting, US non-farm payrolls.
• Outlook: Neutral to bearish. A dovish ECB paired with robust US economic data may drive the pair lower, testing support at 1.0500.
• GBP/USD
• Key Events: Bank of England rate decision, UK inflation data.
• Outlook: Neutral to slightly bearish. The pound could weaken if the BoE signals a pause in rate hikes amid slowing economic activity.
• GBP/EUR
• Key Events: UK GDP release, eurozone inflation data.
• Outlook: Neutral. While eurozone weakness provides upside potential for GBP, broader geopolitical risks could keep gains capped.
• GBP/JPY
• Key Events: BoJ policy decision, UK labour market data.
• Outlook: Bullish. GBP strength against JPY is expected as divergent monetary policies continue to drive the pair higher.
• USD/JPY
• Key Events: US inflation data, BoJ press conference.
• Outlook: Bullish. Renewed US growth optimism and higher yields will likely propel USD/JPY upward.
• USD/CAD
• Key Events: Canadian retail sales, US oil inventory data.
• Outlook: Neutral to slightly bearish. Elevated oil prices support CAD, but USD strength on broader global risk aversion limits gains.
• EUR/JPY
• Key Events: ECB meeting minutes, BoJ monetary policy report.
• Outlook: Neutral to bearish. Slowing eurozone growth paired with yen weakness could create volatility but may favour the yen if risk-off sentiment prevails.

Conclusion

February 2025 presents a complex but navigable environment for currency markets. The inauguration of Donald Trump has injected both optimism and caution into the global economic narrative, with ripple effects across major currency pairs. EMEA’s economic challenges and North America’s fiscal outlook further complicate market dynamics.
Corporate clients should closely monitor upcoming economic data releases, central bank communications, and geopolitical developments to manage risks effectively. Hedging strategies may be prudent for high-volatility pairs, particularly USD/JPY and GBP/USD.

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This report underscores the critical importance of proactive FX risk management in navigating a complex global landscape. With strategic planning and expert support from Margin Expert, corporate businesses can safeguard their financial health and seize opportunities in the evolving FX markets.

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