Despite initial concerns about this week's UK data, the GBP ended the day on a higher note, buoyed by rising gilt yields. PMI numbers from the UK were mixed, with the manufacturing component coming in lower than expected but services coming in slightly higher than projected.
We saw a similar performance in EU and US PMIs with services outperforming but overall US PMIs far outshone the UK and EU illustrating the outperformance of the US economy.
*Daily move - against G10 rates at 7:30am, 17.12.24
** Indicative rates - interbank rates at 7:30am, 17.12.24
UK job numbers this morning showed that the unemployment rate remained at 4.3% in the three months into October but more worrying for the Bank of England (BoE) will be the higher-than-expected wage numbers. Markets have been quick to react, now pricing in only a 50% chance of a third rate cut by the BoE next year. Two-year gilt yields are now at a one-month high and GBP is continuing yesterday's gains. However, we are still weary of the stagflation risks to the economy in 2025 and see any spikes in GBP as an opportunity to hedge against a potential negative 2025 for GBP should these stagflation risks actually surface.
Tomorrow we have CPI numbers.
For the rest of the day we have the latest ZEW survey from Europe to give us a gauge of sentiment in Europe in December and see whether it aligns with the market's current souring outlook of the eurozone economy.
US retail sales in the afternoon will give us a measure once again that the US economy is still performing well and we also have Canada’s inflation report for November. It was only last week that the Bank of Canada suggested to the market that further rate cuts are not guaranteed, and that future policy changes will be made meeting by meeting. Thus any downside in inflation would be a surprise to put CAD under pressure. GBPCAD remains near the 2024 highs.
CAD is at risk of further weakness in light of the political turmoil in Canada following the resignation of their deputy PM and minister of finance amid growing tension with PM Justin Trudeau over the threat of potential tariffs to be levied by Donald Trump.
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