GBP has softened over the past 24 hours against major currency peers, seeing GBP/USD drop below 1.27 and GBP/EUR fight to stay at the 1.16 level. UK inflation is due out tomorrow morning, with expectations suggesting a minor drop in figures from 4.6% to 4.4% for November. It’s thought a softer inflation reading could lead the Bank of England to change their tone from the aggressive ‘higher for longer’ narrative, to potentially adopting a similar stance to The Federal Reserve and bringing hope to the market for rate cuts in 2024. On the face of it, lower interest rates across the board brings a sigh of relief for consumers, however from a financial markets perspective it’s deemed negatively due to The Pound suffering from a reduction in Foreign Investment.
Sticking with inflation, we have European Inflation due out at 10am. It looks again like inflation in The Bloc should drop healthily to 3.6% (down from 4.2%) and could well lead to some EUR weakness as pressure will build on Christine Legarde and The European Central Bank to start having conversations around when Interest Rate Cuts can take place. We also have Canadian Inflation out at 13:30 this afternoon and again just like The Federal Reserve, Bank of England & European Central Bank, they focus will be purely fixated on what the forward guidance suggests regarding rate movements.
The rest of the week doesn’t look overly busy when it comes to economic data, so the next 48 hours will be crucial for markets. On the face of it, we could potentially see both GBP & EUR lose some ground after both inflation figures are released.