Editorial & Advertiser disclosure

Global Banking and Finance Review is an online platform offering news, analysis, and opinion on the latest trends, developments, and innovations in the banking and finance industry worldwide. The platform covers a diverse range of topics, including banking, insurance, investment, wealth management, fintech, and regulatory issues. The website publishes news, press releases, opinion and advertorials on various financial organizations, products and services which are commissioned from various Companies, Organizations, PR agencies, Bloggers etc. These commissioned articles are commercial in nature. This is not to be considered as financial advice and should be considered only for information purposes. It does not reflect the views or opinion of our website and is not to be considered an endorsement or a recommendation. We cannot guarantee the accuracy or applicability of any information provided with respect to your individual or personal circumstances. Please seek Professional advice from a qualified professional before making any financial decisions. We link to various third-party websites, affiliate sales networks, and to our advertising partners websites. When you view or click on certain links available on our articles, our partners may compensate us for displaying the content to you or make a purchase or fill a form. This will not incur any additional charges to you. To make things simpler for you to identity or distinguish advertised or sponsored articles or links, you may consider all articles or links hosted on our site as a commercial article placement. We will not be responsible for any loss you may suffer as a result of any omission or inaccuracy on the website.

Trading

Posted By Jessica Weisman-Pitts

Posted on December 18, 2024

Sterling drops before Fed policy meeting, after UK inflation data

By Stefano Rebaudo

(Reuters) – Sterling fell versus the dollar before the Federal Reserve’s policy meeting later on Wednesday, which could suggest a less aggressive monetary easing path in the U.S., while British inflation figures were in line with analyst expectations.

Consumer prices rose by an annual 2.6% in November, although services inflation held at 5.0%.

Money market bets on the Bank of England interest rate outlook were roughly unchanged, with 57 basis points (bps) of monetary easing expected by the end of 2025 from 55 bps just before the release of the inflation figures. [IRPR]

Front-end UK rates were softer, with 2-year gilt yields down 3 bps to 4.41%. The 10-year yields were at 4.51%, not far from 4.594%, their highest since October 2008.

“Today’s data will only reinforce the Monetary Policy Committee’s (MPC) message of patience and gradualism,” said Sanjay Raja, chief UK economist at Deutsche Bank, arguing the MPC “is some way away from declaring victory on inflation.”

“Price pressures are resurfacing again – with employers likely to start ramping up prices at the start of the year to account for the employer National Insurance Contributions’ (NIC) increase,” he added.

The pound softened against the euro, with the single currency up 0.23% to 82.70 pence. The euro hit 82.51 pence last week, its lowest since March 2022.

Investors still expect the pound to be firm as the yield divergence with the euro area will be significant.

While markets price around 55 bps of cut by the BoE in 2025, they discount a European Central Bank deposit rate at 1.8% in December next year from the current 3%.

Analysts also flagged that recent data showing an acceleration of UK wage growth offered a reason for hawks to get louder in the MPC. The rise was all in the private sector, where pay trends are more linked to economic trends.

Sterling dipped 0.2% to $1.2684 versus the dollar.

“The BoE policy outlook is muddled by weaker evidence that the NIC hike will also be inflationary,” said Shaan Raithatha, senior economist at Vanguard.

British companies have flagged an increase of 1.1 billion pounds in labour costs related to a rise in employers’ social security contributions and minimum wages following Finance Minister Rachel Reeves’ maiden budget in October.

(Reporting by Stefano Rebaudo. Editing by Mark Potter)

Recommended for you

  • Dollar set for big annual gain as traders brace for high US rates

  • Oil heads for weekly gain on China stimulus hopes

  • US stocks tread water in thin trade, benchmark US yield backs off new high