Sterling has made further ground back today after data showed that UK wage growth accelerated more-than-expected in October.
Average earnings including bonuses jumped up the highest levels in 5 months to 5.2% which smashed the markets estimates of 4.6%. This will provide the Bank of England with further rationale to deliver a slow and steady pace of interest rate cuts in 2025, which is Pound positive. No interest rate changes are expected at Thursday’s BoE interest meeting, although today’s data certainly increases the chances of a unanimous vote.
In other news, the last European Central Bank meeting of the year (last Thurs) delivered on what most of the market had expected: a 0.25% cut and a sombre downgrade of its expectations for Eurozone growth in 2025 and 2026. ECB President, Lagarde, hinted that things could be negatively impacted by Trump’s tariffs and it seems that they may look to cut at every meeting in the first half of next year. The Euro was largely unphased by this negative outlook as markets had seemingly already priced in a dovish message prior to the meeting.
Across the pond, market attention is now squarely focused on the last Fed meeting of the year (tomorrow evening). A 0.25% cut is almost universally expected, however the key will be the forward guidance on where policymakers believe rates will be going forward. With US growth remaining strong, the labour market continuing to add jobs at a solid pace and inflation remaining stubborn, it could be the case that these latest forecasts shift towards a more hawkish direction (i.e. an expected reduction in the number of interest rate cuts next year) but watch this space.
As a result, the GBP/EUR is up around 1-cent from yesterday’s low and back to last Thursday’s levels. The GBP/USD is up around 1-cent from last week’s low and trades at the highest levels since the release of Friday’s disappointing UK growth data. We have a packed schedule of data releases this week which includes US retail sales (today), UK/EU inflation data (tomorrow), Fed interest rate meeting (tomorrow), BoE rate decision (Thurs), US GDP (Thurs), and UK retail sales (Fri). So, please make us aware of any upcoming transactions you might have to execute before the festive break.
