Tuesday proved a strong day for the euro, seeing the currency gain more than 0.6% on the dollar and 0.5% on the pound. The dollar’s decline is likely led by the market’s anticipation of the US Federal Reserve’s interest rate decision this afternoon.
Yesterday brought the news that UK unemployment remained steady at 4.7%, a stubborn four-year high. This morning, we learned that inflation remains at 3.8%, the highest it’s been since January 2024 (though substantially down from the highs of 2022 and 2024).
With inflation refusing to fall, it is likely that the Bank of England’s Monetary Policy Committee will hold interest rates steady when they meet on Thursday.
It’s not all steady Eddie in the UK, though. With average earnings seeing a 4.7% rise, the triple-locked state pension will rise in kind next year. An increase substantially ahead of inflation.
After months of holding US interest rates steady, the Fed is expected to make a cut today. Chair Jerome Powell has held them level while trying to work out the impact of President Donald Trump’s erratic fiscal policy.
However, recent downward revisions in the jobs market, and a largely level inflation rate, mean the Fed is likely ready to make its first cut.
With the European Central Bank’s interest rate decision taking place last week, the euro is sitting comparatively pretty, making gains while the other currencies await their central banks’ decisions.
In non-interest rate news, a survey of German economists proved to be unexpectedly positive. Despite tariffs, a widely disliked EU-US trade deal, and the collapse of the French government, Germans are positive for their economic future.
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