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US inflation remained flat in November, leaving some predicting a rate cut.
The pound’s eye-catching streak of daily advances resumed on Wednesday ahead of a crucial meeting of the European Central Bank (ECB). GBP/EUR climbed by a further 0.25% yesterday, meaning the pound is close to its strongest since the fateful Brexit referendum in 2016.
The US dollar emerged from the other side of November’s inflation report largely unscathed, holding firm against the pound and recording small gains over the euro. However, the stability of the present moment is now threatened by the prospect of a Federal Reserve rate cut. The implied likelihood of that is now up to 99%, although that is based on market pricing and remains far from a done deal.
On the face of it, headline inflation arriving as expected at 2.7% may not have been the most arresting news. Both headline and core inflation came in in line with forecasts, which was significant given the risk was that they came in higher than predicted. For these reasons, US markets are now increasing their expectations of one last rate cut before the Christmas break.
Staying in North America, the Bank of Canada’s decision to chop interest rates by a meaty 0.5% to 3.25% helped the Canadian dollar turn higher against its rivals. That marked the fifth time policymakers have cut borrowing costs this year and the scale of the cut underscored their commitment to igniting growth.
British business leaders arrived in Whitehall yesterday with a point to prove, much like the farmers who demonstrated on the lawns below. Executives from major firms like Natwest, BP and Aviva were in attendance as many warned of the significant impact of the chancellor’s budget on investment and recruitment.
With many people in the UK tightening their belts, holiday provider TUI raised its growth forecasts for next year as consumer seek out package breaks to control costs. 2025 bookings are currently “way ahead” of last year, with Greece, Turkey and the Balearic islands proving popular.
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GBP: Hoping for growth
Friday’s GDP numbers for October are a crucial chance for the pound to put its money where its mouth is. Growth turned negative in September as fears over the budget grew but economists predict a rebound. Sterling may be more volatile as we approach the early-morning announcement.
GBP/USD: the past year
EUR: ECB confronts tough choices
The ECB and the euro are in a bit of a bind. A blast of economic growth is sorely needed but turning interest rates well below those of its competitors would be a bitter pill in the short term. With most economists predicting a cut today, more euro weakness may be on the menu until the economy can right itself again.
GBP/EUR: the past year
USD: Inflation falls flat
Inflation came in as expected across the board in November, a rare example of economists accurately predicting a macroeconomic outcome. All eyes are now on Jerome Powell and the Federal Reserve. A late rate cut would likely put a dent in the momentum the US dollar has been building.
EUR/USD: the past year
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