Markets nervously wait for the release of the UK budget tomorrow

For the Bank of England, this week’s Budget will be a key moment. A tax-heavy stance is likely to weigh on domestic demand and strengthen the case for policy easing into year-end. Markets are already pricing higher odds of a December rate cut, and any signal of tighter fiscal conditions could reinforce that view. A recent Reuters poll shows nearly 80% of economists - 48 of 61 surveyed - expecting the BoE to lower the Bank Rate by 25 bps to 3.75% on 18 December, with the remainder forecasting no change.

In the Eurozone, data offered little support for the euro. Germany’s November IFO survey pointed to a softer economic outlook, with the Expectations index falling to 90.6 from 91.6 and the headline Business Climate slipping to 88.1. Although Current Conditions ticked up to 85.6, the modest improvement did little to shift the broader picture of weak momentum in Europe’s largest economy, limiting the euro’s follow-through against its G7 peers.

In the US, dovish comments from NY Fed President John Williams on Friday - suggesting room for a near-term rate cut - had a significant impact on market expectations. Rate-cut pricing in swaps moved from under 10 bps to around 20 bps this morning. As a key member of the Fed’s leadership team, Williams’ views are seen as closely aligned with Chair Powell, making his comments an important signal ahead of December’s meeting. Still, a cut is far from guaranteed given likely pushback from more hawkish policymakers.