Inflation Data Will Probably Bring A Draw Among Euro and USD

GBP: A quiet day

The Pound has rallied through November, helped by unmistakable signals from the Bank of England that UK interest rates won't be cut anytime soon. These bets for rates cuts had eased UK monetary conditions and risked undoing the work of previous rate hikes. That being said, Sterling has risen almost 5% against USD in November, it's biggest monthly rise since November last year. Today remains a quiet day for Sterling on the data front, with the investors eyes drawn to EUR and USD data releases.

No Major Data

EUR: A widely expected further drop in inflation

Early signals from Germany and Spain have been encouraging: inflation in the Eurozone is falling faster than expected. Today, the rest of the area’s countries will release November’s inflation figures, with France’s CPI expected to have slowed to 3.7%, and the Eurozone’s aggregate headline inflation seen decelerating from 2.9% to 2.7%, with the core rate moving from 3.9% to 4.2%. The implications for the Euro would probably be material only if the figures come in surprisingly higher than expected. That’s because markets are already pricing in 75bp of easing by the European Central Bank in 2024, with no chance of any more hikes. Above all, the focus appears to be much more on the deteriorating growth outlook than on a well-telegraphed inflation slowdown.

Data: German and French CPI

ECB President Lagarde Speaks

USD: Data takes over

The Dollar has found some support despite bullish sentiment on US bonds with treasury yields breaking through key levels. Yesterday, the second release of 3Q US GDP showed even stronger growth (5.2% quarter-on-quarter annualised) than the preliminary 4.9%, but core PCE was weaker (2.3%) than the first release. We now have two busy days on the data side into the weekend. Today, jobless claims will be closely watched after last week’s drop to 208k, and given the proximity to payrolls. The consensus is for a rebound to 218k. Personal spending data is also key given the centrality of resilience in consumption in the soft landing debate: the consensus is for a decline to 0.2% in both personal income and personal spending in October. PCE inflation (the Federal Reserve's favourite indicator) is also expected to have slowed in October. That would not be a game changer for the Dollar, however, since the disinflation story appears to have been absorbed by markets, and activity indicators hold considerably higher importance for FX.

Data: Core PCE Price Index m/m

Unemployment claims