The US Dollar has risen across the board overnight after we saw The Federal Reserve reduce their interest rates by 25 basis-points, which would usually weaken the currency. However, due to the fact that the central bank signalled an end to their consecutive rate cuts, The Dollar has broken key levels certainly against The Euro this morning.
A key development from last night’s decision was the fact that just one member of the policy committee had voted to keep rates unchanged, showing a huge majority in favour of this cut. And more importantly, projections from members last night suggested that just 50 basis-points worth of cuts will take place throughout the duration of 2025. Leaving room for just two rate cuts of 25 basis-points, a markedly different view from back in September when it looked like four cuts next year was preferred.
Another key element helping The US Dollar was the revised GDP Forecasts for 2025, with new projections of GDP growing by 2.1% next year against previous figures of 2%. Unemployment is also expected to end the year at 4.3%, which is again under the previous forecasted number of 4.4%. These two coupled with inflation expecting to stay above the 2% mark all bodes well for the safe-haven currency moving into the next calendar year.
The Bank of Japan also surprised markets overnight by keeping their interest rates unchanged with policymakers concerned with their economic outlook as well as where their inflation is heading to The Yen has weakened significantly against The US Dollar with the key level of 155 in focus as this level is seen as a potential tipping point for market intervention by Japanese authorities. If we were to see further Yen weakness this could heighten calls for The Bank of Japan to intervene and raise their interest rates. Markets now see the central bank more likely to raise rates in the coming months, with March or even as soon as January being on the cards.
Moving into today, we turn our focus to The Bank of England who also have an interest rate decision. Markets are fully expecting no movement on Interest Rates today; however forward guidance as ever will be crucial to whether Pound Sterling can reach new highs of 2024. Again, only one member of the committee is expected to vote for a cut which would ultimately send the message that central bank is still concerned about inflation growing. This is justified when considering that November’s inflation creeped up to 2.6% and looks more likely to hit 3% before it drops to the 2% desired rate.
It should be noted, there is a very small chance that The Bank of England take a more reserved approach and hint that markets are anticipating fewer rate cuts than expected and if this was echoed by Andrew Bailey then we could see The Pound fall back to the 1.20 level against The Euro.
GBP/EUR 1.2140 GBP/USD 1.2646 GBP/AED 4.6481
GBP/AUD 2.0278 GBP/CHF 1.1335 GBP/CAD 1.8211
GBP/NZD 2.2387 EUR/USD 1.0408 GBP/ZAR 23.0926