Pound Rises on Stronger Wage Growth, Canadian Inflation Eyed

Pound Rises on Stronger Wage Growth, Canadian Inflation Eyed

GBP

The Pound has moved higher with GBP/USD currently trading at 1.2690 (interbank), while GBP/EUR is at 1.2105 (interbank).

Yesterday’s Services PMI for December exceeded expectations, improving to 51.4, which offered some support for Sterling. However, the UK economy continues to show signs of cooling after a stronger start to the year.

This morning’s data revealed the UK unemployment rate held steady at 4.3% as forecast, while employment numbers increased by 173,000, albeit lower than the previous 253,000 gain. Jobless claims came in notably lower at 0.3K compared to the anticipated 28.2K, while average earnings, excluding bonuses, grew by 5.2% in October, surpassing the 5.0% forecast.

Attention now shifts to tomorrow’s Consumer Price Index (CPI) inflation data, followed by the Bank of England’s (BoE) rate decision on Thursday. The BoE is widely expected to hold rates at 4.75%, with one dovish policymaker likely to vote for a rate cut.

Today’s events (GMT):

07:00 - Average Earnings + Bonus (Oct) – Actual: 5.2% vs Forecast: 4.6%

07:00 - Employment Change 3M (Oct) – Actual: 173K vs Forecast: -12K

07:00 - Unemployment Rate (Oct) – Actual: 4.3% vs Forecast: 4.3%

EUR

EUR/USD has slipped and is currently trading at 1.0483 (interbank).

Yesterday, ECB President Christine Lagarde reiterated that further interest rate cuts could follow if economic data continues to support the current outlook.

Meanwhile, Isabel Schnabel highlighted market expectations for a gradual reduction in borrowing costs as economic momentum across the Eurozone remains sluggish and inflationary concerns fade.

This morning’s PMI figures for December showed better-than-expected improvements, though the services sector remains in contraction, reflecting ongoing worries about a potential economic slowdown.

Investors remain cautious ahead of German data releases today, including Business Climate and Current Assessment reports.

Today’s events (GMT):

10:00 - German ZEW Economic Sentiment (Dec) – Forecast: 6.8

10:00 - ECB's Elderson Speaks

10:00 - ZEW Economic Sentiment (Dec) – Forecast: 12.2

USD

The Dollar Index, which gauges the U.S. dollar against a basket of six major currencies, has rallied to 107.04 this morning.

Yesterday’s PMI data for December painted a mixed picture, with services activity reaching multi-year highs while manufacturing fell further below 50.0, signalling contraction.

Markets are now turning their focus to the Federal Reserve’s interest rate decision tomorrow, where a 25-basis point cut is fully priced in at 99.1%, according to the CME FedWatch Tool.

Investors will also be closely monitoring the Fed’s updated Summary of Economic Projections (SEP) and interest rate forecasts for 2025.

Today’s Retail Sales figures may attract limited attention as markets await further clarity from the Fed’s decision tomorrow.

Today’s events (GMT):

13:30 - Core Retail Sales (Nov) – Forecast: 0.4%

13:30 - Retail Sales (Nov) – Forecast: 0.6%

14:15 - Industrial Production (Nov) – Forecast: 0.10%

CAD

USD/CAD has climbed to 1.4281 (interbank), easing slightly from the new four-and-a-half-year high of 1.4290 reached yesterday.

The Canadian dollar remains under pressure following the Bank of Canada’s (BoC) dovish outlook and aggressive policy easing measures.

BoC Governor Tiff Macklem reiterated yesterday that future interest rate decisions will depend on evolving economic data and suggested a more measured approach to monetary easing.

Meanwhile, Canadian Prime Minister Justin Trudeau faces increased pressure to resign after Finance Minister Chrystia Freeland stepped down, escalating political uncertainty.

Today, markets will closely watch Canada’s inflation data, with headline CPI expected to ease from 0.4% in October to 0.1% in November. Annual inflation is projected to remain steady at 2.0%, while core inflation is anticipated to tick lower from 2.2% to 2.1%.

Oil prices are slightly lower, with Brent crude at $73.81 per barrel and West Texas Intermediate (WTI) at $70.20 per barrel.

Today’s events (GMT):

13:30 - Core CPI (Nov) – Forecast: 1.7%

13:30 - CPI (Nov) – Forecast: 2.0%

13:30 - New Housing Price Index (Nov) – Forecast: 0.1%

 

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