GBP suffered another negative day following on from October's disappointing growth numbers. Consequently GBPEUR continued to decline off the April 2022 highs as markets start looking towards 2025 when the Bank of England (BoE) and European Central Bank (ECB) rate paths might converge.
USD traded weaker in the morning but finished the day stronger again for the 7th consecutive day.
*Daily move - against G10 rates at 7:30am, 16.12.24
** Indicative rates - interbank rates at 7:30am, 16.12.24
It is a big week ahead for GBP with the release of PMI numbers on Monday, job numbers on Tuesday, inflation numbers on Wednesday, rate decision on Thursday and retail sales on Friday.
As mentioned in the last few morning reports there seems to be a growing suspicion that market expectations the BoE's 2025 rate cuts might have been off all along. Anything that implicates that stagflation is going to become a real threat in 2025 could put pressure on GBP. Currently, there are no rate cuts expected in the BoE meeting later this week.
Wednesday night also sees the FOMC meeting where markets are widely expecting the Federal Reserve (Fed) to cut interest rates by 25bps. For USD to continues its recent bout of strength we’d need to see a push back against the current expectations of the Fed cutting rates by 75bps across 2025 and come January, the Fed might indeed suggest pausing rate adjustments.
All in all, we do not expect any dovish surprises by the Fed in this meeting and expect to see USD supported this week.
The Bank of Japan rate decision is also in focus this week. After a raft of sources last week suggested the Bank will refrain from hiking rates in this meeting, market odds have dropped to a 20% chance of a hike. As a result, JPY could come under further pressure pending what is said in the statement.
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