29 Nov 2024

• EUR/GBP loses ground due to the reduced likelihood of another BoE’s interest rate cut this year.
• BoE Lombardelli requires clearer signs of easing inflationary pressures before considering further rate cuts.
• German Retail Sales rose by 1.0% YoY in October and fell drastically short of the expected 3.2% and previous 3.8% readings
• EUR/GBP continues to decline for the fourth consecutive session, currently trading near 0.8310 during the Asian trading hours on Friday. The Pound Sterling (GBP) has strengthened as market participants have reduced their expectations for an additional interest rate cut by the Bank of England (BoE) this year, following last week's data indicating an acceleration in underlying price growth in the UK for October.
  
  On Monday, during her address at King’s Business School, BoE Deputy Governor Clare Lombardelli emphasized the necessity for more definitive indications of diminishing inflationary pressures prior to contemplating further rate reductions. Lombardelli also cautioned about the potential risks if inflation remains above the BoE's target. She expressed concerns regarding wage growth stabilizing between 3.5% and 4.0%, alongside the Consumer Price Index (CPI) hovering around 3% rather than the targeted 2%, which could pose considerable challenges for policy formulation.
• Economic data releases for the United Kingdom (UK) are currently limited, reflecting a broader trend of reduced economic activity and uncertainty. This scarcity of data is expected to continue into the upcoming week, leaving traders and analysts with fewer indicators to gauge the health of the UK economy. One significant event on the horizon is the latest Financial Stability Report from the Bank of England (BoE), which is scheduled for release early during Friday's US market session. However, market participants are skeptical about the potential impact of this report on the Cable markets, as it is deemed highly unlikely to generate significant momentum or volatility. The prevailing sentiment suggests that traders may not find new insights or catalysts within the report to drive substantial market movements.
  
  Meanwhile, across the English Channel, policymakers at the European Central Bank (ECB) are grappling with their own set of challenges. They have voiced concerns regarding the deceleration of economic growth within the Eurozone, a situation that has heightened expectations for a potential interest rate cut in December. However, there is considerable uncertainty surrounding the extent of any possible reduction. Market opinions are notably divided, with some traders anticipating a more aggressive approach to rate cuts, while others remain cautious, weighing the implications of such a move on inflation and economic stability.
  
  In this context, traders are now focusing their attention on the upcoming release of the Eurozone Harmonized Index of Consumer Prices (HICP) data, which is set to be published on Friday. This data is particularly significant as it provides insights into inflation trends across the Eurozone. Analysts expect core HICP inflation to rise to 2.8% year-on-year in November, an increase from the 2.7% recorded in October. This anticipated uptick in inflation could present challenges for ECB officials, many of whom have recently sought to reassure investors about the likelihood of further rate cuts. The rising inflationary pressures may complicate the ECB's decision-making process, as officials must balance the need to support economic growth with the imperative to manage inflation effectively. As such, the upcoming HICP data will be closely scrutinized for its implications on monetary policy and the broader economic outlook for the Eurozone.