USD eases back from high levels, UK and EU inflation refuses to drop

GBP: GBP has pulled some ground back vs USD, steady vs EURO, at 1.2000. Higher than expected inflation readings mean that the Bank of England will cut rates at a slower than expected pace, boosting GBP. Alongside a pullback in the USD, GBP/USD has gained ground vs USD to trade near 1.2700 again.

USA: After a huge post-election rally, the USD lost about 1.5% this week, and we are looking for guidance on the Fed’s actions in the December interest rate meeting. Current market pricing is 66% chance of a rate cut in December, and a total of 0.75% rate cuts throughout 2025.

Next week, we have ISM Manufacturing and Services data and Friday’s all important Non-Farm Payroll data.

EUR: EUR/USD hangs on to 1.0550 and inflation was reported inline at 2.3% - which may convince the ECB to slow the pace of rate cuts, but that awaits to be seen. The market is pricing in a 0.25% rate cut in December.

As one economist states: “The economy is not falling off a cliff just yet and there is uncertainty about where the neutral rate is, so there is no pressing need to start frontloading cuts.” If a 0.25% cut is delivered in Dec, we will likely see the same in January and March.