GBP/USD Buoyed by Fed’s Rate Cut

GBP/USD gains momentum near 1.2622 due to market anticipation that the Bank of England (BoE) will maintain interest rates in light of elevated domestic inflation. Wednesday’s UK Consumer Price Index (CPI) rose by 2.6% YoY in November, up from 2.3% in October. Core CPI, excluding food and energy, increased by 3.5% YoY, up from 3.3%. Services inflation held steady at 5%, slightly below the forecast of 5.1% but above the Bank of England's estimate of 4.9%. On the dollar front, the greenback strengthened following the Federal Reserve’s decision to reduce interest rates by 25 bps, revealing a hawkish stance with a dot plot indicating just two potential rate cuts in 2025. Apart from the BoE’s interest rate decision, investors will monitor the US weekly Initial Jobless Claims, Existing Home Sales, and the final reading of the Gross Domestic Product for the third quarter (Q3) for GBP/USD direction.

GBP/JPY Climbs After BoJ Policy Decision

GBP/JPY soared to 198.16 as the Japanese yen weakened following the Bank of Japan's (BoJ) announcement to keep interest rates unchanged. The BoJs policy statement indicates that inflation is expected to align broadly with the BoJ's price target in the latter half of its three-year projection period, extending through fiscal 2026. However, there is considerable uncertainty regarding Japan's economic and price outlook. GBP/JPY’s upside is supported by the steady pound, bolstered by the increasing likelihood of the Bank of England (BoE) keeping interest rates unchanged later in the day while focusing on curbing elevated domestic inflation. The UK’s monthly employment report indicated an unexpected uptick in wages as Average Earnings, Excluding Bonuses, increased by 5.2% in the three months to October, up from 4.9%, beating estimates of 5%. Today’s BoJ Governor Kazuo Ueda’s speech and the BoE’s interest rate decision will significantly influence the GBP/JPY pair.

AUD/USD Rebounds Following Fed Decision

AUD/USD recovers near 0.6240 as investors digest the Federal Reserve’s unexpected hawkish stance by reducing the benchmark lending rate by 25 bps. Additionally, a Summary of Economic Projections, or ‘dot-plot,’ suggests only two rate cuts in 2025, revising from four cuts projected in September, injecting market volatility. US Retail Sales rose by 0.7% MoM in November, exceeding October’s revised 0.4% increase. Meanwhile, US Industrial Production fell by 0.1% MoM, missing expectations, after a revised 0.4% decline in October. Wednesday’s Fed Chair Jerome Powell's speech suggests a cautious stance due to slowed deflation. On the other hand, the increasing bets that the Reserve Bank of Australia (RBA) will cut interest rates faster than expected might weigh on the Aussie. In the upcoming session, market sentiment around the RBA’s monetary policy and the Fed’s decision will drive the AUD/USD movements.

EUR/USD Firms on Hawkish Fed Rate Cut

EUR/USD climbed to 1.0418 as the Fed delivered a hawkish cut of 25 bps at its December meeting on Wednesday, supporting the dollar. The Fed's 'dot-plot' revised its 2025 rate cut forecast to two, down from four in September’s projection. In the press conference, Fed Chair Jerome Powell emphasised vigilance about further cuts as inflation stayed above the 2% target. According to its latest economic projections, the Fed has also revised its 2025 core Personal Consumption Expenditures (PCE) Price Index forecast to 2.5%, up from the previous estimate of 2.2%. In contrast, the euro remains under pressure as investors anticipate the European Central Bank (ECB) will cut interest rates at every meeting until June 2025. The GfK Consumer Climate increased by 1.8 points to -21.3 points, compared to the previous month (revised -23.1 points). Meanwhile, the Euro area current account balance recorded a €26 billion surplus in October 2024, down from the previous €39 billion. In today’s session, the US Initial Jobless Claims data for the week ending December 13 and the second estimate of Q3 Gross GDP will drive the EUR/USD movements.

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