Markets Prepare for Interest Rate Decisions in the U.S., UK, and Eurozone


GBP

The GBP/USD has experienced a marginal decline of 0.04%, currently trading at 1.2542 (interbank), near the two-week low of 1.2504 observed last Friday.

GBP/EUR remains stable, currently trading at 1.1670 (interbank).

Despite the Bank of England's consistently hawkish stance, concerns persist regarding choppy growth forecasts and economic indicators. While the latest service sector PMI exceeded expectations, the UK’s domestic sales monitor for November fell short of estimates.

Last week, BoE Governor Andrew Bailey maintained a higher-for-longer interest rate narrative.

The upcoming interest rate decision on Thursday will be closely watched and is anticipated to have no rate change, with the base rate remaining at 5.25%. The markets will, however, focus on the tone of the guidance, especially regarding potential rate cuts.

Tuesday will unveil wage data, Wednesday will feature UK GDP figures for October, and the week concludes with the latest S&P Global PMI data for December.

No major data today

EUR

The euro has seen a modest increase of 0.07%, currently trading at 1.0768 (interbank), not far from the three-week low of 1.07235 recorded last Friday.

The Euro's recent depreciation is attributed to the strong performance of other currencies and economies amid rising inflation. In Germany, inflation slowed to 2.3%, below the forecast of 3%, leading to a less hawkish stance by the European Central Bank (ECB).

The focus is on Thursday's ECB interest rate decision, with expectations of maintaining the Main Refinancing Operations Rate at 4.5%.

Additional data includes the latest ZEW Economic Sentiment in Germany, industrial production figures, and manufacturing sector data.

No major data today

USD

The Dollar Index has edged 0.07% higher to 104.03, reversing three weeks of losses with a gain of more than 0.7% last week.

U.S. job growth accelerated in November, with the unemployment rate falling to 3.7%, challenging expectations of imminent rate cuts from the Fed. Nonfarm Payrolls exceeded expectations with a significant increase to 199,000.

Focus now shifts to U.S. inflation data on Tuesday and the Fed’s interest rate decision on Wednesday. Expectations lean towards a CPI decrease to 3.1%, influencing the Federal Reserve's monetary policy decisions. The Fed funds rate target range is widely expected to remain at 5.25%–5.5% for a third consecutive time.

Thursday's retail sales and unemployment claims data will also provide insights into consumer spending and labour market conditions. Strong data could further boost economic confidence and support the dollar.

The latest PMI data on Friday will measure manufacturing and services sector activity.

No major data today

CAD

The USD/CAD has recovered some recent losses, currently trading at 1.3600 (interbank) in the morning's session.

Crude oil prices have risen following last week's data, indicating resilience in the United States.

The Bank of Canada decided to maintain interest rates last week, keeping the key overnight rate at 5%. The possibility of another hike was indicated, with ongoing concerns about inflation.

Inflation in Canada fell to 3.1% in October, down from a peak of over 8% last year but still above the bank’s 2% target. The policy statement no longer included language about slow progress toward price stability and increased inflationary risks but highlighted decreased labour market pressures and slowed growth in the middle of the year.

Data is light from Canada this week, with the latest housing starts and a speech by a BoC government official scheduled for Friday.

No major data today

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German IFO Disappoints; Focus Turns to Inflation Reports

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U.S. Dollar Edges Higher, Rate Cut Expectations Strengthen