A more hawkish than expected Federal Reserve (Fed) last night saw the USD soar, resulting in both GBPUSD and EURUSD trading towards the lows of this year. The Fed cut rates by 25bps as was widely expected, and revised their dot plot down to only two rate cuts next year. The Fed also suggested that risks to the job market have diminished making a good case for a slower pace of rate cuts. Market pricing for rate cuts next year now sits at 35bps.
The Bank of Japan held rates, delivering a cautious policy decision which has been perceived as dovish by markets, causing JPY to weaken across the board.
*Daily move - against G10 rates at 7:30am, 19.12.24
** Indicative rates - interbank rates at 7:30am, 19.12.24
USD has given up some of the gains from last night but nonetheless we feel the strength of the currency will remain going into the year's end.
The Bank of England (BoE) meeting today is expected to be a bit of a non-event given there is no press conference scheduled after and expectations are that interest rates will stay the same.
If there is any hawkish commentary from the BoE, we expect GBP to also be well supported going into year's end. We could well see fresh new highs tested on GBPEUR, GBPAUD and GBPCAD.
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