ExchangeRates.org.uk - In global terms, markets are expecting the Euro-Zone to be the weakest economic area during 2025 while there is optimism that the UK performance will be closer to the US than the Euro area.There are also very strong expectations that the ECB will sanction a further interest rate cut at Thursday’s meeting.
In this context, the Pound has made headway on the crosses with the Pound the Euro (GBP/EUR) exchange rate strengthening to 33-month highs at 1.2140 before a marginal correction.
Crucial long-term resistance is close to 1.2200 and any break higher would trigger 8-year highs.
According to Scotiabank (TSX:BNS); “Sterling is a relative outperformer over the past 3 months, however, reflecting the slow-moving policy evolution at the BoE.
That trend should remain in place, supporting GBP gains on the crosses.”
The Pound to Dollar (GBP/USD) exchange rate has found support on dips and traded close to 1.2770.
Scotiabank commented; “Daily price action does look a little soft, however, and a low close for the pound today would signal more risk of losses in the days ahead following last week’s failure to challenge the 200-day MA.
Support is 1.2700/10 and 1.2630.
Resistance is 1.2775 and 1.2825.”
US consumer prices increased 0.3% for November with the year-on-year figure edging higher to 2.7% from 2.6% and in line with consensus forecasts.
Core prices also increased 0.3% with the annual rate holding at 3.3% with both figures meeting market expectations.
Following the data, markets consider that a Fed rate cut next week is certain.
Scotiabank, however, commented; “On consensus data might raise the risk of the Fed’s communications sounding a little more cautious on the outlook.”
The dollar remained broadly resilient despite the traditional seasonal selling pressures.
Overall confidence in the US economy remains strong, especially with hopes for extended tax cuts and de-regulation.
Bank of America (NYSE:BAC) economist Stephen Juneau commented; "From a fundamental standpoint, we do not see material upside risk to inflation.
That said, progress on inflation should stall next year given our expected changes to tariffs, fiscal and immigration policies."
According to ING; “The dollar has come back bid – partly on the exceptionally strong US NFIB small business optimism index released yesterday.
Perhaps it should be no surprise that US entrepreneurs welcomed the prospect of tax cuts and deregulation next year.”
MUFG commented; “The bias for the US dollar remains to the upside.
This bias has been helped further today by a Reuters report out of China that the authorities are considering allowing USD/CNY to move higher next year in order to counter the impact of the tariffs expected by President-elect Trump.”
MUFG added; “A move higher in USD/CNY is certainly consistent with further US dollar gains in the G10 space as well.”
This content was originally published on ExchangeRates.org.uk