U.S. CPI, Canadian and European Rate Decisions in Focus This Week
GBP
GBP/USD is currently trading at 1.2772 (interbank), while GBP/EUR is at 1.2080 (interbank).
The Pound Sterling remains firm against its major counterparts as the Bank of England (BoE) is expected to adopt a more gradual pace in its monetary easing cycle amid ongoing concerns about persistent inflationary pressures.
Last week, the UK's manufacturing PMI was unexpectedly revised lower, but this was partially offset by an upward revision to the services PMI. Meanwhile, a survey by the Recruitment and Employment Confederation (REC) and KPMG revealed a decline in demand for workers, with their staff demand index falling to 43.9, the lowest level since August 2020, after Labour’s first budget raised Employer’s National Insurance Contributions to 15%.
This week, GBP investors will focus on GDP data, with any sign of contraction potentially capping further gains for the Pound. Today, attention turns to a speech by BoE Deputy Governor Dave Ramsden, who has previously leaned towards reducing interest rates.
Today’s events (GMT):
13:00 - MPC Member Ramsden Speaks
EUR
EUR/USD is steady, currently trading at 1.0569 (interbank).
Political instability continues to unfold in France as the search for a replacement for Michel Barnier as Prime Minister remains ongoing after his loss in a no-confidence vote last week. President Emmanuel Macron faces challenges in appointing a new prime minister capable of securing parliamentary support to govern effectively.
This week, the European Central Bank (ECB) will hold its final policy meeting of 2024 on Thursday, with a widely expected fourth interest rate cut of the year likely to bring borrowing costs to their lowest level since March 2023. The market anticipates a 25-basis point (bps) reduction, though there is a slim chance of a larger 50-bps cut.
ECB President Christine Lagarde’s press conference following the meeting is likely to provide further insight into the interest rate trajectory. Dovish commentary could weigh further on the Euro.
No significant events are scheduled for today
USD
The Dollar Index, which tracks the U.S. dollar against a basket of six major currencies, has declined slightly to 106.057.
Last week’s Nonfarm Payrolls (NFP) report showed an increase of 227,000 jobs in November, well above market expectations of 200,000, with revisions for October showing a significant improvement to 36,000 from an initial 12,000. Despite this, the Unemployment Rate rose slightly to 4.2%, and annual wage growth held steady at 4%, above the expected 3.9%.
This week, markets are focused on November’s Consumer Price Index (CPI) data due on Wednesday, which will offer key insights into inflation trends ahead of the Federal Reserve’s final policy meeting of the year. Markets are currently pricing in a 25-basis point rate cut at the meeting, but persistent inflation risks could shift these expectations.
Concerns over a potential inflation revival have also resurfaced following President-elect Donald Trump’s plans to increase tariffs on imports, which are expected to exacerbate inflationary pressures.
No significant events are scheduled for today
CAD
USD/CAD has advanced and is currently trading at 1.4157 (interbank), near its lowest level in four-and-a-half years.
Canada’s latest employment data showed the jobless rate rising to 6.8% in November, the highest level since January 2017 outside of the pandemic era, with 1.5 million unemployed people. The disappointing labour market data has bolstered expectations that the Bank of Canada (BoC) will announce a significant 50-basis point interest rate cut this Wednesday, following a similar move in October, bringing the benchmark rate to 3.25%.
The market now places an 80% probability on a 50-basis point rate cut, up from 55% before the employment data release. Concerns over potential U.S. tariffs under President-elect Donald Trump’s administration also pose a downside risk to the Canadian Dollar.
Meanwhile, oil prices edged higher after the fall of Syrian President Bashar al-Assad’s regime increased uncertainty in the Middle East. Brent crude is trading at $71.48 per barrel, while West Texas Intermediate (WTI) crude is at $67.57 per barrel.
No significant events are scheduled for today
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