Euro falls to USD1.08; cable weak to USD1.29

The euro fell to USD1.0856 on Thursday, its lowest in over two months, as the European Central Bank and the Federal Reserve diverged in their monetary policies.

Euro falls to USD1.08; cable weak to USD1.29

The ECB is expected to cut rates by 25 basis points in its early afternoon statement, following cuts in September and June. Traders expect further cuts at each meeting through March, reflecting the ECB's response to slowing inflation, which has fallen to 1.8% in the eurozone, its lowest since April 2021.

In contrast, stronger-than-expected US employment and inflation data have reduced the positioning for further aggressive rate cuts by the Federal Reserve, keeping pressure on the euro.

The British pound, also bearish, is trading at USD1.2989 after UK inflation recently slowed more than expected, reinforcing the case for further rate cuts by the Bank of England. The annual inflation rate eased to 1.7%, the lowest since April 2021 and below the 1.9% forecast. Core inflation eased to 3.2% from 3.6%, and services inflation fell to 4.9%, the lowest since May 2022.

Investors now expect the BoE to cut rates by 45bps by the end of the year

The central bank is expected to lower funding costs by 25bps next month. In addition, attention is focused on the 2025 budget announcement to learn about government policies and the tax regime.