Weekly Market Brief

AIB Treasury Economic Research Unit

10th –14th March 2025
March Madness for the dollar
 While global trade and fiscal policies were very much front and centre of market discourse and action over recent days, there
were also important developments in relation to monetary policy. Specifically, the European Central Bank (ECB) cut rates by
25bps at its March Governing Council meeting, lowering the Deposit rate to 2.50%. With the cut to rates fully priced in by
markets, the key point of interest for investors, was what guidance, if any, would be forthcoming from the ECB on the future
path of official rates. In this regard, the meeting statement continued to emphasise that the central bank will follow a “data-
dependent” approach. However, there was a significant change to the statement, with the ECB now stating that “monetary
policy is becoming meaningfully less restrictive”. In other words, the extent of further rate cuts is likely to be limited. On top of
this, President Lagarde stated that, “if the data points to a pause, we will pause, if the data points to a cut, we will cut”. Thus,
while the ECB maintains a willingness to cut rates again if warranted, the direction of monetary policy has become less clear. In
terms of market expectations, futures contracts suggest traders anticipate around 40bps of further policy easing from the ECB
over the remainder of this year. This would see the Deposit rate end the year near 2%.
 From a currency perspective, the euro shrugged off any potential downside from the ECB rate cut. Instead, the standout
underperformer on FX markets over recent days has been the dollar, which has lost 2-4% on the exchanges. Since the autumn,
US growth exceptionalism/expectations and interest differentials have underpinned the dollar but these drivers have reversed in
the last week or so amid trade policy uncertainty and softer US macro data. At the same time, recently announced European
Union plans to increase defence spending and a seismic expansionary shift in Germany in relation to defence and infrastructure
spending, has seen Eurozone swap rates/yields move significantly higher. It has also improved medium-term growth prospects
for the region, although the near-term outlook remains challenging.
 In level terms, EUR/USD has traded up above the $1.08 level to its highest mark since November. Likewise, dollar weakness was
reflected in GBP/USD moving up into $1.29 territory, having been below $1.26 only a few days ago. Meanwhile, the euro has also
made gains versus sterling with the EUR/GBP pair moving back up to the 84p threshold. The sharp moves over recent days
highlight the increased sensitivity of the FX majors to geopolitics and global trade newsflow. With no sign of any let up on these
issues in the near term, and given the direction of monetary policy has become less clear, volatility is likely to persist on the
currency front. % US CPI Inflation
5.00
 Turning to the week ahead, the main data release of note will be US CPI
4.70
inflation for February. In recent months, CPI has proven to be quite sticky.
4.40
The headline rate trended lower in the first three quarters of 2024 but re-
accelerated at the end of the year, jumping to 2.9% in November and 4.10

December, and to 3.0% in January. Similarly, core-CPI eased slowly to a low of 3.80

3.2% last July and August, but it has printed in a 3.2-3.3% range every month 3.50
to January since then. The consensus is for the headline rate to edge back to 3.20
2.9% in February while the core rate is projected to decline slightly to 3.2%.
2.90

 Elsewhere in the US, producer price inflation is forecast to fall to 3.3% in 2.60
February from 3.5% in January. Meantime, the preliminary reading of the 2.30
University of Michigan Consumer Sentiment Survey for March will garner Jul 23 Oct 23 Jan 24 Apr 24 Jul 24 Oct 24 Jan 25
Core CPI Headline CPI Source: BEA
attention. The headline index registered five months of solid gains in the
second half of 2024 before declining sharply in the opening two months of 2025, with February’s level of 64.7 the lowest since
November 2023. A further deterioration to 63.9 is pencilled in for March. In terms of the labour market, JOLTS job openings
figures for January are due.
 In the UK, the monthly update of GDP for January will be the highlight. Having contracted in the three months between
September to November, GDP rebounded by 0.4% in December. However, the UK economy has been broadly stagnant in the
second half of the year, with growth of just 0.1% overall recorded during the period. This suggests momentum will slow again
after December’s unexpected bounce. Indeed, a meagre 0.2% increase is forecast for January. In a similar vein, UK Industrial
production declined (albeit more sharply) between September to November, before recovering somewhat at the end of 2024.
However, a 0.1% contraction is expected in January.
 In the Eurozone, industrial production data are also due. Industrial output was 3% lower in 2024 compared to 2023. Worryingly,
the downward trajectory persisted in Q4, with production falling by 0.5% in the quarter, largely due to a 1.1% decline in
December. It was the seventh successive quarterly contraction in Eurozone industrial production. A modest 0.6% increase is
projected in January though.

Interest Rate Forecasts Exchange Rate Forecasts (Mid-Point of Range)

Current End Q1 End Q2 End Q3 Current End Q1 End Q2 End Q3
2025 2025 2025
2025 2025 2025

EUR/USD 1.0845 1.03 1.04 1.05

Fed Funds 4.375 4.375 4.375 4.125
EUR/GBP 0.8399 0.83 0.83 0.84
ECB Deposit 2.50 2.50 2.25 2.00 EUR/JPY 159.76 155 157 157
BoE Repo 4.50 4.50 4.25 4.00 GBP/USD 1.2909 1.25 1.26 1.26
BoJ OCR 0.50 0.50 0.75 0.75 USD/JPY 147.32 150 150 149
Current Rates Reuters, Forecasts AIB's ERU Current Rates Reuters, Forecasts AIB's ERU
 ECONOMIC DIARY
Monday 10th - Friday 14th March

Date UK & Irish Time Release Previous Forecast

_____________________________________________________________________________________________________________

This Week: ECB Speakers: Lagarde, Lane (Wed); De Guindos (Thu)

BoE Speakers:
Fed Speakers:
____________________________________________________________________________________________________________
AIB Mon 10th GER: 07:00 German Industrial Output (January) -2.4% (-3.1%) +1.5% (-2.8%)
Treasury GER: 07:00 Trade Balance (January) +€20.7bn +€21.0bn
Economic EU-20: 09:30 EU Sentix Index (March) -12.7 -10.0
Research JPN: 23:50 GDP (Q4: Revised Reading) +0.7% +0.7%
____________________________________________________________________________________________________________
Tue 11th US: 10:00 NFIB Small Business Optimism (February) 102.8
US: 14:00 JOLTS Job Openings (January) 7.6m
David ____________________________________________________________________________________________________________
McNamara Wed 12th US: 12:30 CPI Inflation (February) +0.5% (+3.0%) +0.3% (+2.9%)
Chief - Core-CPI +0.4% (+3.3%) +0.3% (+3.2%)
Economist ____________________________________________________________________________________________________________
Thu 13th EU-20: 10:00 Industrial Production (January) -1.1% (-2.0%) +0.6% (-1.0%)
IRE: 11:00 CPI Inflation (February) -0.8% (+1.9%) +0.7% (+1.6%)
- HICP Inflation Flash: +0.7% (+1.3%) +0.7% (+1.3%)
John Fahey US: 12:30 Initial Jobless Claims (w/e 3rd March) +221,000
Senior US: 12:30 PPI Final Demand (February) +0.4% (+3.5%) +0.3% (+3.3%)
Economist - PPI Ex-Food & Energy +0.3% (+3.6%) +0.3%
____________________________________________________________________________________________________________
Fri 14th GER: 07:00 Final HICP Inflation (February) +0.6% (+2.8%) +0.6% (+2.8%)
UK: 07:00 GDP (January) +0.1% (+1.5%) +0.2% (+1.2%)
Daniel - 3 mth / 3 mth +0.1% +0.3%
Noonan UK: 07:00 Industrial Output (January) +0.5% (-1.9%) -0.1% (-0.8%)
Economist - Manufacturing Output +0.7% (-1.4%) +0.0% (-0.6%)
UK: 07:00 Goods Trade Balance (January) -£17.5bn
- Non-EU -£6.1bn
FRA: 07:45 Final HICP Inflation (February) -0.2% (+0.9%) -0.2% (+0.9%)
SPA: 08:00 Final HICP Inflation (February) +0.4% (+2.9%) +0.4% (+2.9%)
ITA: 09:00 Industrial Output (January) -3.1% (-7.1%) +1.2%
US: 14:00 Preli. Michigan Consumer Sentiment (March) 64.7 63.9

Month-on-month changes (year-on-year shown in brackets)

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