Magna Financial Market Report –December 13th 2024
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• GBP declines as yield gap narrows and economy contracts
• ECB reduces expected rate cuts
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RECAP
The euro strengthened across the board yesterday, following the European Central Bank’s decision to reduce rates by only 25bps. Despite the ECB omitting their previous language about rates being “restrictive,” the market’s reaction to the meeting seemed less dovish than anticipated.
In response, money markets revised their projections, lowering the expected rate cuts for next year from 150bps to 125bps, signaling a more cautious outlook than earlier forecasts.
As a result, the EUR rose, with the GBPEUR pair falling from its April 2022 peak, while EURUSD stayed within its weekly trading range. Meanwhile, GBP experienced a decline across the board, driven by a narrowing yield differential compared to its
peers.
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OUR SUMMARY
The UK economy unexpectedly contracted by 0.1% in October, increasing pressure on GBP. Market expectations for rate cuts in the UK have been relatively modest compared to the more aggressive pricing in Europe. This may indicate that the gap between ECB and BoE rate forecasts could start to narrow, diminishing some of the appeal of GBP.
This morning’s growth data adds weight to the idea that the UK’s economic performance may not be as strong as previously believed. As a result, GBPEUR remains below its April 2022 high.
In addition, the USD is experiencing renewed demand as Treasury yields remain steady. Going forward, the potential narrowing of the rate gap between the ECB and BoE, combined with weaker UK growth, could continue to exert downward pressure on GBP.
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HOW WE CAN HELP
Our team of currency experts are here to help you get more from your money when making international payments. We will work with you to understand your payment needs and offer specialised guidance on the best options available to you. Get in touch with Osman Hanif today on +44 (0) 20 3371 9200 or email osman@magnafinancial.com.
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