The poor UK GDP growth on Friday, which fell short of forecasts and raised the possibility of economic stagnation, caused the British pound to drop. Inflation and PMI data from the UK, which are expected later this week, will be important going forward; lower numbers could lead to quicker rate reduction, while higher data could help the pound. In the end, the picture is still unclear because the pound is encountering resistance close to its most recent highs versus the euro.
The Euro faced pressure from concerns over the Eurozone’s economic outlook, including political issues in Germany and the potential impact of U.S. tariffs. Despite some recent weakness, the Euro’s broader challenges are partly due to slower growth expectations and uncertainty surrounding future interest rate decisions in the Eurozone. Economic data, including inflation and PMI figures, will be crucial in determining whether the Euro can stabilize or face further declines.
As Fed Chair Jerome Powell signalled that the economy doesn’t need immediate easing by lowering expectations for a rate decrease, the U.S. dollar declined little towards the end of last week. The likelihood of a December 25-basis-point cut fell from 85% to 63%. In the end, Powell’s prudence and ongoing inflation worries indicate that any further reductions might be gradual. In spite of this, the Dollar saw a brief surge before declining, indicating changes in the market.
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