The ECB meeting last week went mostly according to the script, with a 25bp cut and significant downward revisions to the bank’s view on Euro Area economic growth.
GBP
Disappointing October data in monthly GDP growth and industrial production last week set the stage for this week´s Bank of England meeting, which will take place right after the PMI indices and the November labor and inflation reports are released. It is unusual to see a central bank decision take place immediately after such a deluge of economic data, but the latter are not expected to sway the MPC into cutting rates. It could, however, impact the number of dissenters who vote for a cut. We think that going into 2025, high rates, relatively resilient growth and continued rapprochement with the EU will enable Sterling to continue to rise against both the dollar and the euro.
EUR
The last ECB meeting of the year delivered what most had expected: a 25bp cut, and a somber downgrade of its expectations for Eurozone growth in 2925 and 2026, while leaving its inflation projections largely unchanged. The downbeat assessment probably means there will be a cut at every meeting in the first half of 2025. The euro rook this in stride and managed to end the week just above the 1.05 level against the dollar. The next big test will be Decembe flash PMI indices of business activity, which took a dive in November after Trump’s electoral victory but may rebound now that the initial shock has worn out.
USD
The inflation report for November came out exactly as expected. Most notable was that the monthly number printed at 0.3% for the fourth consecutive month, consistent with an annualized rate just below 4% that will add to Fed anxiety that progress in bringing down inflation has stalled. While we expect the Fed to cut rates this week, we expect that forward guidance will move in a hawkish direction and struggle to justify more than two additional cuts in all of 2025.
