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Pound Sterling climbs to a new 2 year-high

Pound Sterling climbed to a new 2 year-high yesterday as it gained momentum ahead of Thursday’s European Central Bank meeting. As it stands, The European Central Bank is expected to cut interest rates by 25 basis-points, although there is a rumour mill beginning to gather force towards a potential 50 basis-point cut. A more aggressive rate cut tomorrow would bring further weakness to the Euro. This aggressive stance would also confirm fears that the Eurozone’s economy is ultimately facing tough times. When you couple these lower rates in Europe with The UK looking to lower rates a lot slower, this should lead to GBP remaining elevated against the Euro.

Moving into this afternoon, we have US Inflation data set to be released, and projections expect to see US Inflation accelerating for the second consecutive month, whilst also climbing to a new four-month high in the process. With The Federal Reserve due to cut interest rates next week, we don’t expect this to change the narrative for this meeting. However, it could cause markets to scale back their bets for interest rate cuts in 2025 and therefore a US Dollar surge this afternoon should not be ruled out. Of course, if Inflation was to undershoot expectations, then we should see the opposite effect here. With markets further increasing bets for more cuts throughout next year.

Later in the schedule, we have the Bank of Canada’s interest rate decision with the markets widely expecting a cut of 50 basis-points. This will bring their rates down to 3.25%, with the bank also set to leave the door ajar for further rate cuts through 2025 as a result of a jump in the unemployment numbers, as well as potential trade friction with The United States once Donald Trump begins his presidency in January. The November jobs data showed that an increase in population has led to unemployment surging to 6.8%, a whole percentage point higher than this exact time a year ago. In terms of market impact, if we do see a 50 basis-point cut then we should see the Canadian Dollar weaken as a result of this.

GBP/EUR 1.2112 GBP/USD 1.2712 GBP/AED 4.6724
GBP/AUD 2.0056 GBP/CHF 1.1240 GBP/CAD 1.8041
GBP/NZD 2.2056 EUR/USD 1.0480 GBP/ZAR 22.7299

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