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UK GDP rose to 0.1% in November. Editorial credit: T. Schneider, via Shutterstock.
UK economic growth returned to positive territory in November after two months of consecutive contraction. The British economy grew by 0.1% month-on-month and by 1% on an annual basis, which was actually slightly below the level economists had forecast.
Sterling put together a spirited comeback yesterday as falling inflation gave the bond market some time to collect their thoughts. GBP/EUR and GBP/USD had each advanced by around half a cent by the time of the European close.
For all the analysis of these key events, don’t forget to download your copy of our January-March Quarterly Forecast. New to this edition, you can also see a focused commentary of all the dates that could see heightened volatility. You can download the report here.
Germany reported the bleak news that its economy shrunk in 2024 for the second year on the bounce. This news came in line with market expectations but was still a bitter blow for the old engine of eurozone growth. Manufacturing shed 0.3% of output year-on-year, highlighting a shocking performance by the country’s previously dominant sector.
Headline inflation in the American economy increased as expected to 2.9% last month but news that core inflation arrived below forecasts was greeted with excitement. Core inflation, which strips out volatile goods like food and energy, fell to 3.2% in December – the first time it has fallen in five months.
US stock markets celebrated this news with a flurry of activity. While good for the likes of Tesla, Nvidia and the string of banks that reported strong earnings yesterday, the implication was much more mixed for the US dollar. The US dollar fell sharply against its rivals as markets reassessed the likelihood of upcoming cuts from the Federal Reserve, before a late rally wiped many of these losses out.
Just days before Donald Trump’s inauguration, Israel and Hamas have agreed a long-rumoured ceasefire. Brokered by Qatar, Egypt and the United States, the deal covers three phases that ultimately aims for a permanent armistice and the reconstruction of Gaza.
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GBP: Reeves breathes sigh of relief
UK chancellor Rachel Reeves will be relieved to see the pound stabilising. Pressure had been growing on her in recent days but an improvement in sterling’s fortunes has eased borrowing costs and put the bond market on pause. For now, at least.
GBP/USD: the past year
EUR: Euro runs out of steam
The euro’s rally against the US dollar failed to make it out of yesterday afternoon’s trading. Meanwhile, GBP/EUR advanced as UK inflation fell and the German economy showed more sign of weakness.
GBP/EUR: the past year
USD: Inflation music to Trump’s ears
While it got a little carried away celebrating Trump’s victory, US dollar markets should remember that Trump’s economic goals rest on low interest rates and a strong stock market. The president-elect is likely to exert pressure on the Fed to cut interest rates and we have seen many times how those can eat away at one currency’s dominance.
EUR/USD: the past year
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