Fed rate cut bets eased off again yesterday, after details in yesterday's inflation numbers showed that it remains stubborn in the US economy. Core inflation remained at 3.1% and headline inflation at 4%, but there were increases in housing (up 0.4%) and other service-sector costs (0.5%). USD erased previous losses as a result. Earlier in the day a sharp deceleration in weekly earnings in the UK saw markets increase amount of rate cuts expected by the BoE next year. The spread between rate cuts between the BoE and Fed next year has now dropped from a difference of 60 bps to 15 bps.
The EUR was buoyant at the start of the day after the ZEW survey expectations rose to the highest since August, indicating sentiment is picking up.
Market rates
* Daily move - against G10 rates at 7:30am, 13.12.23
** Indicative rates - interbank rates at 7:30am, 13.12.23
Data points
Speeches
USD – Fed Powell
Our thoughts
GBP is lower this morning after data revealed the economy shrank more than expected by 0.3% in October. Following on from yesterday’s lower earnings numbers, markets have continued to price in more rate cuts for next year. We will need to have a hawkish BoE meeting on Thursday to stem further losses on the currency.
Producer price inflation is due in the afternoon, but considering the importance of the Fed meeting in the evening, we don’t expect much movement off the back of these numbers. So will the Fed and Chair Powell stick to their hawkish mantra that rates will stay higher for longer OR will there be dovish undertones in his commentary? The Fed dot plot will be key in the outlook of the Fed, so we wait with bated breath for Fed Powell's statement in the evening.
Chart of the day
The spread between rate cut expectations between the BoE and the Fed has shrank by 45 bps since the start of the month and is now at the lowest since mid-November dragging GBPUSD lower. Next up is tonight's Fed meeting and the BoE meeting tomorrow, and we wait to see further impact on rate expectations for next year and whether December's move lower continues.
Our team of currency experts are here to help you get more from your money when making international payments. We will work with you to understand your payment needs and offer specialised guidance on the best options available to you. Over the last 17 years we’ve helped over a million customers and last year alone processed over £9.1bn. We’re tried and trusted, and we’re ready to help you.
Sign up to our daily market reports to get the latest news and insights on worldwide currency movements straight to your inbox every morning.
Enter your email address below to subscribe.
