investingLive European FX markets wrap: UK inflation cools just before BOE decision

Headlines:

Markets:

• USD leads, GBP lags on the day
• European equities higher; S&P 500 futures up 0.4%
• US 10-year yields up 2.5 bps to 4.174%
• Gold up 0.3% to $4,317.33
• WTI crude oil up 1.9% to $56.32
• Bitcoin down 0.9% to $87,040

The key risk event of the session came early on in the form of the UK inflation report. The numbers underwhelmed on estimates, reflecting softer price pressures and that led to a drop in sterling as UK stocks rallied.

Both the headline and core readings came in below expectations, with the details revealing a modest drop in food prices and core goods prices. The latter likely owes to heavy discounts on Black Friday sales but still, it’s enough to be quite a contrast to what we saw in November last year at least.

That being said, services inflation remains a sticking point as it continues to rest comfortably above 4%. The trend there is what will matter most for the BOE in the months ahead, so we’ll have to wait and see.

In any case, market players took to the report in solidifying expectations for a BOE rate cut tomorrow with perhaps quicker intentions for another to follow that up next year.

Prior to the UK inflation report, the next full 25 bps rate cut was priced in for July 2026. Now, that is bumped forward to April 2026. But looking out from now to the end of next year, there is ~69 bps of rate cuts priced in and that is not much changed from ~67 bps of rate cuts before the data. As such, that might put a floor on how much the pound might drop in the aftermath to all this.

GBP/USD fell from 1.3370 to 1.3311 before recovering a little to 1.3337 currently. The UK FTSE is putting in a solid shift in being up 1.5% on the day for now.

Besides that, the dollar was generally firmer in the major currencies space. EUR/USD is down 0.3% to 1.1715 with price action locked in between large option expiries at 1.1700 and 1.1750 on the day. Meanwhile, USD/JPY is seen higher by 0.5% to 155.50 levels as we see a solid rebound from below 155.00 yesterday.

In the equities space, European indices are keeping steadier and not all too much changed besides UK stocks. The DAX is flat while the CAC 40 is down 0.1%, so that’s not leaving much to work with. That despite US futures holding slight gains ahead of the open later. S&P 500 futures are up 0.3% on the day after a slow start earlier.

As for commodities, silver is continuing its hot streak with over 3% gains again today in a push to retest $66 earlier on. We’re seeing price keep around $65.85 for now, with the bullish run still sticking in December. Meanwhile, gold is also holding higher with 0.3% gains to $4,317 on the day.