UK Inflation Rises Again; Spotlight on Fed Rate Decision
GBP
GBP/USD is currently trading at 1.2690 (interbank), while GBP/EUR is at 1.2089 (interbank).
The Pound remains stable following the release of the latest UK inflation data. Figures from the Office for National Statistics (ONS) revealed that annual CPI rose by 2.6% in November, up from 2.3% in October and aligning with market expectations. Core CPI, which excludes volatile food and energy prices, climbed to 3.5% year-on-year, slightly below the anticipated 3.6%. On a monthly basis, inflation eased to 0.1% in November, down from 0.6% the previous month.
These figures reinforce expectations that the Bank of England (BoE) will keep interest rates unchanged at 4.75% during its policy meeting tomorrow, with one member likely voting for a 25-basis-point cut. Investors will closely follow BoE Governor Andrew Bailey’s press conference for insights into the central bank’s outlook for 2025.
Today’s events (GMT):
07:00 - Core CPI (Nov) – Actual: 3.5% vs Forecast 3.6%
07:00 - CPI (Nov) – Actual: 2.6% vs Forecast 2.6%
07:00 - PPI Input (Nov) – Actual: 0.0% vs Forecast: 0.2%
EUR
EUR/USD is steady at 1.0501 (interbank).
Yesterday, German business confidence sank to its lowest level since mid-2020, according to the Ifo Business Climate Index, which fell to 84.7 in December from 85.6 in November, below market expectations. The European Central Bank (ECB) reduced interest rates last week for the fourth time this year and signalled further reductions as inflationary risks subside.
ECB Governing Council member Olli Rehn reiterated that rates are likely to continue falling as inflation stabilises around the 2% target. Similar sentiments were echoed by ECB President Christine Lagarde, who has underscored the importance of gradual policy easing to address ongoing economic challenges.
Today, markets will focus on the Eurozone's Harmonised Index of Consumer Prices (HICP) data, which is due shortly.
Today’s events (GMT):
09:00 - ECB's Lane Speaks
10:00 - Core CPI (Nov) - Forecast 2.7%
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10:00 - CPI (Nov) - Forecast 2.3%
USD
The Dollar Index, which tracks the US dollar against a basket of six major currencies, has softened slightly to 106.984.
Yesterday, US retail sales rose by 0.7% month-on-month in November, exceeding the 0.5% forecast. However, industrial production contracted by 0.1%, weaker than the anticipated 0.0% growth.
Market attention now turns to the Federal Reserve’s interest rate decision later today, where a 25-basis-point reduction is widely expected. Investors will closely analyse Fed Chair Jerome Powell’s remarks and the updated Summary of Economic Projections (SEP) for further guidance on the central bank’s monetary policy.
While inflation remains elevated, strong employment figures may lead to a more cautious easing trajectory from the Fed in 2025.
Today’s events (GMT):
19:00 - Rate Decision and Press Conference - 4.50% cut from 4.75%
CAD
USD/CAD has risen to 1.4325 (interbank), the highest level since March 2020.
Canada’s inflation data released yesterday revealed that annual CPI fell to 1.9% in November, slightly below the market forecast of 2.0%. Monthly CPI was flat, aligning with expectations, while core inflation dropped to 1.6% year-on-year.
Bank of Canada (BoC) Governor Tiff Macklem highlighted heightened economic uncertainties and noted that the central bank would assess further rate reductions cautiously.
Meanwhile, political tensions are mounting as Prime Minister Justin Trudeau faces calls to resign following Finance Minister Chrystia Freeland’s resignation earlier this week, citing disagreements over fiscal policies.
Oil prices remain stable, with Brent crude at $73.53 per barrel and West Texas Intermediate crude at $70.43 per barrel.
No significant events are scheduled for today.
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