GBP/USD briefly traded above 1.25 overnight, the third time this month

GBP/USD has dropped further this morning with prolonged dollar strength continuing to be seen in financial markets. GBP/USD slipped below 1.21 overnight for the first time since March 2023 as investors continue to worry about US interest rates needing to be held at current levels well into 2024. The latest monthly survey from the British Retail Consortium has added some extra downward pressure to the pounds value with it showing the first monthly drop in supermarket prices in over two years. With food bills making up a large chunk of consumer spending, this will add weight to the argument that the Bank of England will no longer need to raise interest rates and will (like the US Federal Reserve) hold them at current levels into 2024. GBP/USD is currently around 1.2070. GBP/EUR is a touch lower at 1.1525.

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The Swiss consumer price index fell by 0.2% in November, data showed yesterday. The fall was put down to lower prices for hotels and package holidays, as well as fuels and fruiting. The European Central Bank’s (ECB) president Lagarde spoke at the Academy of Moral and Political Sciences, in Paris which market participants were hoping for interest rate clues. However, the speech offered little. Australia maintained their interest rate overnight, after hiking rates by 25 basis points in October, citing the need for more macroeconomic data to spur another rate decision.
It has already been a busy morning with French industrial productions and a number of European Services PMI releases.

The former fell 0.3% on the month in October with the majority of services seeing an uptick, but below the 50.0 gauge showing contraction. ECB board member Isabel Schnable offered comment of note this morning, stating that further interest rate hikes are off the table given a remarkable fall in inflation and policymakers should not guide for rates to remain steady through mid-2024. Sterling jumped to 1.1675 against the EUR but has seen fallen and EUR/USD tested a fall below 1.0800 but recovered.

The euro dipped yesterday, giving back some of its recent gains against the US dollar after the ECB relaxed the pace of its interest rate increases following the Federal Reserve signalled it was done with its tightening programme.

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