Rates cuts are being signalled, China ramps up stimulus & the world prepares for 20th Jan

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USD: The US jobs report last week saw a mixed reaction, but reinforces the Fed’s view that the US economy is in a strong position which allows them to take their time with lowering rates – ‘with caution’. Inflation data published tomorrow will provoke a reaction if it is off target, but the USD index is steady. The market is pricing in a 90% chance of a 0.25% cut in rates on 18th Dec.

GBP: Importantly, Governor Bailey of the Bank of England confirmed his expectations of 4 0.25% interest rate cuts next year. The Bank meets on 19th Dec and is widely expected to leave rates at 4.75% - holding as inflation remains slightly elevated at the bank target of 2%. GDP later this week will give short-term direction, but GBP/EUR remains above 1.2000 and GBP/USD sits comfortably around 1.2750

EURO: The ECB is widely expected to cut rates by 0.25% this Thursday. The EURO trades with a weak bias as a result, with EUR/USD at 1.0550

With these 3 economies looking to reduce rates at a steady pace, with a close eye on inflation, GBP is holding up because the pace of cuts to date has been slower than these counterparts.

China: China has recently published a slew of weak data, rounded off by today’s sharp decline in imports (the steepest decline in 14 months). Exports posted only a 6.7% annual increase which is way off the expected 12.7% increase. Consumer demand in China remains weak and the onset of tariffs in the near future looks dangerous to the Chinese economy.
The government earlier this week said that it will use fiscal and monetary tools to boost growth.