At its last meeting of 2025, the Federal Reserve voted to cut interest rates by a quarter point (0.25%). That decision put to bed weeks of frenzied speculation from across global markets and came with enough of a dovish slant to send the US dollar down by about half a cent against the pound and the euro.
But there is tension at the Fed, both among its members, who once again broke with the conventional unanimity to vote in a nine to three split, and within its policy mandate. Chair Jerome Powell highlighted the unusual conflict between the twin directives of protecting jobs and controlling inflation. Last night’s decision took interest rates to a three-year low amid rising unemployment and an uncertain inflation outlook.
Chancellor Rachel Reeves mounted a feisty defence of her autumn Budget on Wednesday. During a grilling by parliamentary select committee members, Reeves said that measures taken to boost the fiscal headroom should prevent similar action being necessary come spring. She did still stress that she reserved the right to take action “at any point”.
There was less drama for the Bank of Canada, which opted to keep rates unchanged at 2.25% after two consecutive cuts. Its no nonsense assessment of current rates as “about right” contrasted almost comedically with the hysteria surrounding the Fed. After the decision, the Canadian dollar strengthened against the pound by lost a bit of value to its neighbour to the south.
Taking a closer look at key currency pairs, the pound enjoyed a stable Wednesday, trading mostly sideways against the euro and strengthening slightly against the US dollar. The dollar came under a little downward pressure ahead of the Fed’s press conference, but much of the positioning came earlier in the week.
After an era-shifting defence review released by the United States this week, defence secretary John Healey said the UK was going “all-in” on the Aukus alliance. You might find that a little odd given it is comprised of Australia, the United States and the UK. But the British defence landscape remains committed to a deal it sees as the best chance of maintaining security amid Trump’s pivot from Europe.
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