US Consumer Prices rose in November by the biggest margin in 7 months, ticking up to 2.7%, with the Federal Reserve still expected to opt for a third straight interest rate cut in their meeting next week to support a labour market which has been cooling recently. Despite inflation climbing again, there was some positive news within the rental market with rental prices rising at their slowest pace in almost 3 and a half years. Consumer prices also rose 0.3% last month, showing the largest gain since April after seeing four straight months of 0.2% growth.
The Bank of Canada also reduced their interest rates yesterday by 50 basis-points, bringing their rates down to 3.25%. Yesterday’s cut was the fifth straight rate cut by the Bank of Canada, however there was some breathing space for the Canadian Dollar after the governing council changed their tune from stating prior to the release that they would expect to reduce the rate further if the economy evolved in line with their forecasts, to stating afterwards that the central bank would take a more gradual stance to lowering interest rates. It should also be noted that the economic outlook for 2025 is clouded slightly due to the possibility of trade tariffs on Canadian exports once Trump’s presidency begins next month. Moving forward, the sentiment has now clawed back from future 50 basis-point cuts, with January’s meeting now pivoting towards a 17 basis-point cut which is currently priced in at 70%.
Turning our focus to today, the Swiss National Bank cut their interest rates earlier this morning by 50 basis-points to take them down to 0.5% which was the biggest rate cut in almost 10 years, but also the lowest rates have been since November 2022. This morning’s decision was the first under the new chairman Martin Schlegel which also brought an acceleration from the previous chairman Thomas Jordan who had overseen three rate cuts of 25 basis-points each this year. This acceleration was made possible by weak Swiss inflation, which was 0.7% in November and has been within the Swiss National Banks price stability range since May 2023.
Sticking with Central Banks, The European Central Bank have their rate decision at 1:15pm. Although the consensus has been geared more towards a 25 basis-point cut, markets seem to have driven up the possibility of a more aggressive 50 basis-point cut which has been the main driving force behind GBP/EUR reaching new highs earlier this week. The possible fallouts from this could arrive if The ECB surprise markets and opt for a lower cut, or if they do move forward with the 50 basis-point cut, but more importantly provide a more reserved path for fewer rate cuts in 2025. On the contrary, if The ECB do cut by 50 basis-points but also provide an aggressive outlook for rate cuts next year then we could well see the Euro lose further ground against both GBP & USD.
GBP/EUR 1.2126 GBP/USD 1.2749 GBP/AED 4.6847
GBP/AUD 1.9887 GBP/CHF 1.1312 GBP/CAD 1.8022
GBP/NZD 2.1957 EUR/USD 1.0499 GBP/ZAR 22.5143