Currency Update

GBP: Mixed data a challenge for Bank

After a week of slow decline (especially against the euro) the pound had a shot in its arm this morning, when UK salaries were reported still to be rising faster than expected and British businesspeople were more optimistic – and in an active sort of way – than expected. It all disguised unemployment hitting a new post-pandemic high. While an interest rate cut is still expected from the Bank of England on Thursday, it’s a little less locked in and it will all depend on inflation data coming out tomorrow.

Other than that, all the excitement surrounding the UK Budget appears to have died off for the festive season but doubts about our political and economic leadership are bound to arise again in the new year.

EUR: Positive period for euro

The single currency has enjoyed a positive week, benefitting from the European Central Bank’s early interest rate cutting policy which means that a rise in interest rates in 2026 is not out of the question. We’ve been awash with eurozone economic data, most of it seeming to contradict itself. PMI data was a little disappointing this morning – notably German manufacturing – although services were reasonably positive, but the Centre for European Economic Research (ZEW) had its best reading for economic sentiment in months.

With the ECB insisting that it is taking a determinedly data-driven approach to monetary policy, the fate of the euro this year depends on such numbers.

GBP/EUR

USD: Dollar takes another dive

The US dollar has hit the skids to end the year. Firstly, a reminder that compared to the start of the year it is now down 16% on the Swedish krona, over 12% down on the Swiss franc and only a little less down on the euro. Its latest losses have been due to the likelihood of a more doveish replacement for Jerome Powell at the US Federal Reserve next year, to placate President Trump.

Data has been mixed. We’ve just head that US unemployment is at its highest since September 2021,  Non-Farm Payrolls was distinctly muted and wages rose less than expected. We’ll hear inflation on Thursday.

USD/EUR