RegencyFX give their monthly update on developments in the foreign exchange markets. March 2025 proved to be a dynamic month for the foreign currency market, with the GBP, EUR, and USD experiencing notable shifts driven by macroeconomic policies, central bank decisions, and global trade developments. Below is an analysis of how these currencies performed and the key factors influencing their movements.

U.S. Dollar (USD): A Mixed Performance Amid Trade and Policy Uncertainty

The USD entered March 2025 riding a wave of strength from late 2024, bolstered by expectations of Trump administration policies such as tax cuts and tariffs. However, the month saw a more volatile trajectory. Early in March, the dollar gained traction as a safe-haven currency amid uncertainty over U.S. trade policies, with tariffs on Chinese goods set to rise to 20% by March 12. This initially pushed the USD higher against a basket of currencies, with the Dollar Index (DXY) hovering around 104.30 by the end of the month.

Mid-month, however, the USD faced headwinds. Softer-than-expected U.S. economic data, including a Core PCE Price Index rise to 2.8% year-on-year in February (reported in late March), hinted at persistent inflation pressures yet also raised concerns about slowing growth. The Federal Reserve, having cut rates to 4.25%-4.50% in December 2024, signalled a cautious approach, with markets pricing in only two rate cuts for 2025—down from earlier expectations of four. This shift tempered USD gains, and by late March, the currency saw a sell-off, with GBP/USD climbing from 1.2580 to above 1.2900 and EUR/USD rising from 1.0400 to near 1.0900. The USD’s performance reflected a tug-of-war between its safe-haven appeal and fears of an economic slowdown exacerbated by trade tensions.

Euro (EUR): Pressured by Economic Weakness and ECB Moves

The EUR struggled throughout March 2025, weighed down by sluggish Eurozone growth and aggressive monetary easing from the European Central Bank (ECB). The ECB cut its deposit rate by 25 basis points in early March, bringing it to a level described as “meaningfully less restrictive”, signalling a potential pause in the pace of future cuts. This followed a series of reductions in 2024, driven by falling headline inflation and looming U.S. tariffs, which threatened to further dampen Eurozone exports.

EUR/USD started the month near 1.0400 but rallied to around 1.0900 by March’s end, largely due to USD weakness rather than inherent euro strength. Germany’s fiscal stimulus package, including a €500 billion infrastructure fund, provided some early support, pushing EUR/USD past resistance levels. However, fading euphoria over this package and broader trade concerns—particularly Trump’s proposed tariffs on European imports—capped gains. Forecasts from ING and Danske Bank suggested a risk of EUR/USD dipping below parity later in 2025 if trade pressures intensified, though March closed with the pair consolidating gains from its late-month surge. The EUR remained vulnerable, with economic growth projected at just 0.6% for 2025, leaving it exposed to external shocks.

British Pound (GBP): Resilience Amid Domestic Challenges

The GBP displayed relative resilience in March 2025, outperforming the EUR and holding its own against the USD, though not without challenges. The month began with GBP under pressure from weak UK economic data, including a dip in headline inflation and persistent high services inflation. The Bank of England (BoE), having cut rates to 4.75% in 2024, adopted a cautious stance, with markets expecting 100 basis points of cuts in 2025. This dovish tilt, combined with budget tightening signalled in the Spring Statement, weighed on Sterling mid-month, pushing GBP/EUR below 1.1900 and GBP/USD to around 1.2850.

However, GBP rebounded late in March, buoyed by a weaker USD and positive market reactions to the spring budget, which avoided destabilising surprises and slightly raised long-term growth forecasts. GBP/USD climbed to 1.2948 by month-end, up from earlier lows, while GBP/EUR hit 20-day highs near 1.1980. Analysts at Goldman Sachs forecasted GBP/EUR at 1.2200 over 12 months, citing overdone Eurozone optimism, while HSBC predicted a retreat to 1.1765 due to UK economic uncertainties. Overall, GBP’s performance reflected a balancing act between domestic policy caution and external USD volatility.

Key Market Drivers

1. U.S. Trade Policy: Trump’s tariff announcements, including delays on Canadian and Mexican tariffs and impending hikes on Chinese goods, drove FX volatility, alternately boosting and pressuring the USD.

2. Central Bank Actions: The Fed’s hawkish pause contrasted with the ECB’s easing and the BoE’s measured cuts, shaping currency divergences.

3. Economic Data: Weak U.S. growth signals, Eurozone stagnation, and mixed UK indicators influenced market sentiment.

4. Global Risk Appetite: Trade fears and equity sell-offs intermittently supported the USD as a safe haven, while gold hit record highs above $3,000, reflecting broader uncertainty.

March 2025 showcased a foreign currency market in flux, with the USD oscillating between strength and retreat, the EUR grappling with structural weaknesses, and the GBP carving out a middle ground. As trade tensions and monetary policy divergences continue to unfold, April 2025 promises further volatility, with the USD’s trajectory hinging on U.S. economic resilience, the EUR on Eurozone adaptability, and the GBP on UK policy execution.

Currency ranges in March.

GBP/EUR

High: 1.2128 on March 2, 2025

Low: 1.1842 on March 11, 2025

GBP/USD

High: 1.3007 on March 19, 2025.

Low: 1.2578 on March 2, 2025.

GBP/AUD

GBP/AUD

High: 2.0740 on March 31, 2025.

Low:  2.0249 on March 3, 2025

EUR/USD

High: 1.0950 on March 18, 2025.

Low: 1.0371 on March 2025.

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