- The US dollar continues to post gains with the dollar index sitting close to a two year high, led by higher treasury yields. The single currency remains soft against the solid greenback with EURUSD hovering above key support at 1.06 – a level which is sure to break very soon. We witnessed a false break of this level briefly yesterday but options demand between 1.05 and 1.06 is so far holding. Markets fear that a significant breach of the so far stubborn 1.06 support opens a move to the psychological 1.05 ahead of the October 2023 low of 1.0448. Some analysts are talking parity again, a level last witnessed in 2022.
- The pound remains soft against the king dollar, trading on a 1.27 handle and consolidating ahead of the next round of data which includes UK GDP at the end of the week and CPI next Wednesday. Speaking after the release of the labour market report yesterday, BoE Chief Economist Huw Pill remains cautious on inflation, saying, “There remain some underlying inflationary pressure in the UK economy.” Discussing the path of interest rates he said, “That’s likely to be a gradual process. It’s a question of how far…it’s a question of how fast.” The BoE next meet on 19 December and markets remain undecided on whether the MPC will pause or deliver a third cut of the year.
- The attention this afternoon will be on the US CPI data released at 1.30pm UK time. An unchanged headline and core reading are expected for October amid signs that inflation is gradually coming down – however markets remain cautious of Trump’s tax and tariff policies and their impact on consumer prices towards the end of next year.
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