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The Bank and the Fed may have a pair of rate cuts to hand out before Christmas.
Currency markets are increasingly confident that 2025 will end with quarter-point interest rate cuts on both sides of the Atlantic. Sterling and the US dollar are both struggling to pick up momentum ahead of imminent Bank of England and Federal Reserve meetings and a long list of lingering risks.
One week after the autumn Budget, recriminations around the Office for Budget Responsibility’s (OBR) accidental early release of its fiscal report are still rumbling on. Mercifully for the OBR, the hiccup that ultimately cost chief Richard Hughes his job was not raised by MPs during its appearance before a parliamentary committee.
In fact, there appeared a sincere effort to close ranks to end the tedious blame game. One senior official claimed the chancellor had not deliberately misled the public and financial markets over the state of public finances, shutting down one angle of intense media scrutiny.
Ironically, both the pound and the UK seem to be in a better place after last week. Yesterday morning brought news that house prices increased by more than expected (1.8% vs 1.7% annualised) in November. Alongside the promise of seasonal consumer spending and lower interest rates, businesses and households alike are beginning to prepare for a more upbeat end to year.
Global bond markets stabilised yesterday after rumblings of an interest rate hike in Tokyo gave Japan’s bonds a winter cold to pass across the world. UK and US bond yields were becalmed, easing the risk of government spending overshooting forecasts.
UK pension funds joined the Bank of England in expressing scepticism over AI stocks. After the Bank’s warning that rocketing valuations could cause a “sharp correction”, pension funds have reportedly significantly decreased their allocations to the US tech sector in an effort to shield investors.
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GBP: Middle of the pack
Sterling has had a balanced week, trading bang in the middle of its G10 competitors, according to analysts at Scotiabank. Regardless, Tuesday brought the fast signs of weakness as the pound lost about half a cent to the euro as markets adjusted their rate cut predictions.
GBP/USD: the past year
EUR: Contrasting numbers
The eurozone’s headline inflation rate ticked up slightly from 2.1% to 2.2% in November, driven higher by an outsized contribution from services prices. While this gave the euro a boost, the simultaneous announcement that unemployment had climbed to 6.4% was enough to cap its advances.
GBP/EUR: the past year
USD: Trump lines up next Fed chair
In a typically freewheeling press conference yesterday evening, US President Donald Trump touched on everything from healthcare to Venezuela. The most relevant part for the US dollar was the hint that the next chair of the Fed would be unveiled in early 2026. That opens an intriguing legal question around the future of Jerome Powell which is sure to surface next year.
EUR/USD: the past year
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