The EUR gained across the board yesterday following the European Central Bank (ECB) decision to cut rates by only 25bps. Whilst the ECB dropped their line about rates being “restrictive”, the market's perception of the meeting was perhaps not as dovish as expected.
Consequently, money markets adjusted their outlook, trimming expectations for next year's rate cuts from 150bps to 125bps, reflecting a more conservative forecast than previously anticipated.
As a result, GBPEUR slipped from its April 2022 high and EURUSD remained in the weekly trading range.
GBP declined across the board as the yield differential for GBP narrowed versus its peers.
*Daily move - against G10 rates at 7:30am, 13.12.24
** Indicative rates - interbank rates at 7:30am, 13.12.24
The UK economy unexpectedly shrank in October by 0.1%, piling even more pressure onto GBP this morning. Market pricing for UK rate cuts has been rather shallow compared to what's been priced in for Europe.
Perhaps markets are beginning to realise that this gap in rate expectations between the ECB and the Bank of England (BoE) might begin to narrow. This might be taking some of the lure away from GBP. This morning’s growth numbers add to this argument. Perhaps growth in the UK is not as robust as some believed.
GBPEUR continues to trade below the recent April 2022 high.
And lastly, this morning we are seeing another bid for USD as treasury yields hold firm.
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