Pound (GBP) Slides as BoE Rate Hike Bets Decline
The Pound (GBP) fell yesterday as markets continued to rein in their expectations for Bank of England (BoE) interest rate rises.
A slowdown in US inflation and forecasts that British energy bills will fall this year increased the likelihood that UK price pressures may begin to decrease. Meanwhile, the UK’s economic outlook gets darker by the day. As a result, the BoE may not raise rates as high as originally thought.
Earlier this morning, November’s GDP data showed a rise of 0.1%, rather than the 0.2% contraction economists had expected. This could help Sterling claw back some losses.
Euro (EUR) Firms as ECB Policy Divergence Narrows
The Euro (EUR) strengthened yesterday as hawkish expectations from the European Central Bank (ECB) continued to underpin EUR demand.
While markets expect the Federal Reserve and the BoE to slow or pause their tightening cycles, ECB policymakers have continually reiterated their commitment to further aggressive interest rate rises. Following the US CPI, this gave the common currency a notable lift.
Turning to today, a slowdown in Germany’s annual GDP growth last year could dent EUR. Later on, a recovery in Eurozone industrial production may provide the single currency with modest support.
US Dollar (USD) Tumbles following US Inflation Rate
The US Dollar (USD) slumped yesterday after the latest American CPI showed a marked slowdown in December. The annual inflation rate eased from 7.1% to 6.5%, its lowest since October 2021.
While there was some volatility following the reading, USD dropped sharply overall. Markets further scaled back their bets for further aggressive interest rate rises from the Federal Reserve.
This afternoon the latest Michigan consumer sentiment report could give the ‘Greenback’ a modest boost, as forecasters expect an uptick in January’s reading.
Canadian Dollar (CAD) Stumbles alongside USD
The Canadian Dollar (CAD) was dragged lower by its positive correlation with the US Dollar yesterday. However, a modest rise in oil prices may have limited losses for the oil-linked ‘Loonie’.
Today, the ongoing lack of Canadian economic data could mean that crude prices have the most impact on CAD exchange rates.
Australian Dollar (AUD) Rangebound amid Chinese Trade Data
The Australian Dollar (AUD) was muted overnight, though it managed to hold on to yesterday’s gains despite mixed trade data from China.
New Zealand Dollar (NZD) Ticks Lower Overnight
The New Zealand Dollar (NZD), meanwhile, ticked lower in overnight trade, without a clear catalyst for the movement.