16 December 2024

GBP

This morning saw the release of UK PMIs, with Manufacturing coming in below forecasts at 47.3, while Services continued to show expansion and exceed estimates at 51.4.

UK jobs data is due at 7am on Tuesday. Although markets expect the unemployment rate to remain at 4.3%, an increase from 4.3% to 4.7% is anticipated for the year-over-year Average Earnings Index for the three months to October.

Wednesday’s UK Consumer Price Index is expected to show an uptick from 2.3% to 2.6%, likely driven by an increase in core goods prices. Bloomberg Economics expects inflation to remain above the Bank of England’s 2% target throughout 2025, supporting Andrew Bailey’s contention that four rate cuts may be necessary during the year.

The Bank of England is expected to hold rates at 4.75% in its meeting on Thursday. This is the final meeting of the year, and UK interest rates are in a very different position to what was forecast at the end of 2023. Although markets had priced in six interest rate cuts in 2024, we have seen only two materialise, one in August and one in November. This gradual approach to cutting rates has seen the GBP reportedly become the top-performing G10 currency of the year.

Friday’s UK retail sales are expected to show an increase of 0.5% compared to last month’s figure of -0.7%.

EUR

The European Central Bank’s President Christine Lagarde spoke on the ECB rate’s path this morning, following the central bank’s decision to cut interest rates by a further 25 basis points last week. Lagarde said, “After a lengthy period of restrictive policy, our confidence that we are seeing a timely return to target has increased.”

Since the ECB believes that current rates are still constricting economic activity, it is likely to continue to bring down interest rates throughout 2025. Echoing this view, markets are currently pricing in 100 basis points of cuts in the European Central Bank’s next four meetings. This would see the deposit facility rate decrease to 2% by June next year.

PMIs for the Eurozone were released this morning, with Manufacturing staying in line with last month’s figure at 45.2 and Services showing expansion again at 51.4 after falling below 50 last month.

Tuesday morning sees the release of the German IFo Business Climate index data, with the German ZEW Economic Sentiment made available an hour later. The Eurozone Final CPI year-over-year is expected to remain unchanged at 2.3% when it is released on Wednesday.

USD

US PMIs were released this afternoon. Although Manufacturing is still showing a slight contraction while Services continue to expand, figures for both sectors were marginally lower than last month. Tuesday will see the release of US retail sales, which are anticipated to rise by 0.6%, driven mostly by increased vehicle sales.

At its meeting on Wednesday, the Federal Reserve is expected to cut rates by 25 basis points. Markets have priced in this cut at a 93% chance, so market participant will be concentrating on Jerome Powell’s comments at the post-meeting press conference.

The quarterly FOMC Economic Projections will also be released on Wednesday, including forecasts for future interest rate paths and economic and inflation projections. Given the expectation that Trump’s policies could be inflationary, markets expect this week’s rate cut to be followed by holds at subsequent FOMC meetings. Current Bloomberg expectations are that FOMC participants will revise their inflation expectations upwards, and unemployment downwards, supporting a slower approach to its monetary policy easing.

The final GDP quarter-over-quarter is anticipated to remain at 2.8% on Thursday, with Unemployment Claims expected to come in around last month’s figure at 245,000. On Friday, November’s Core PCE Price Index will be released month-over-month. This serves as the Fed’s primary inflation measure, and is expected to fall slightly to 0.2%.

This commentary does not constitute financial advice. All rates are sourced from Bloomberg and forecasts are taken from Forex Factory.