December 12, 2024

“The central bank decisions continue today. The Bank of Canada cut by 50bps yesterday and the SNB have taken markets by surprise with a jumbo cut too. The ECB meeting is the main event today and we get some US PPI inflation data too.”

Sam Cornford – Head of Trading

USD

The dollar continued to catch a bid yesterday even as traders firmed up their expectations for a rate cut next week. Central banks have FX in their grip this week. The Bank of Canada delivered a second 50bp rate cut yesterday and the ECB and the SNB are the two making decisions today. In Japan, the BoJ appears to be leaking several stories preparing markets for no hike next week, and in Australia a surprise fall in the unemployment rate to an 8-week low has kept the Aussie dollar’s volatile streak going with 0.7% jump.

In the US, yesterday’s CPI report met expectations, although the jump in the implied chance of a cut next week to 98% suggests that markets were anticipating a slightly higher figure. The 0.3% month-on-month core inflation print is the fourth consecutive month where CPI has been running above 3% on an annualised basis, and the market appears to be assuming that December might be a final opportunity to deliver a cut before policymakers need to start thinking about pausing next year. Today, the domestic focus is on PPI inflation, which typically gives economists enough information to come up with a prediction for the Fed-preferred core PCE inflation gauge.

GBP

Sterling hit fresh 2.5-year highs versus the euro yesterday and has been holding relatively firm against a rising dollar. The focus today will be on the ECB and US inflation, although December’s data calendar finally wakes up first thing tomorrow morning with an October GDP print. Growth is expected to have returned to positive territory at the beginning of Q3 after a -0.1% September figure.

EUR

The market is all but certain that the ECB will cut by 25bps rather than 50bps today. With the decision itself locked in, the important factors for the euro are the new macroeconomic projections and any dovish giveaways from Lagarde during the press conference. Policymakers had already hinted that the projected timing for meeting the 2% target had been brought forward, and that is likely to be reflected in lower inflation and growth forecasts for 2025, which would give them the space to continue cutting in the coming months. Expect Lagarde to stick to her policy of no forward guidance and watch out for repeated mentions of the phrases ‘meeting-by-meeting’ and ‘data dependent’. Markets will look to hang on to any crumbs that hint towards faster easing and give the excuse to take EUR/USD lower.

Meanwhile in Switzerland, EUR/CHF has jumped 0.6% after the SNB surprised markets with a 50bp rate cut. Prices have fallen by 0.8% since June and the forecast for the yearly inflation figure next year has dropped to 0.3%.

Markets

Stock tickers were a sea of green across the globe yesterday, with the Nasdaq rising nearly 2% as markets consolidated their bets on a Federal Reserve rate cut next week.

Main Economic Events (All Times CET)

9:30am: Swiss National Bank Rate Decision
2:15pm: ECB Rate Decision
2:30pm: US PPI Inflation & Jobless Claims

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