On December 19 (Thursday), the Bank of England (BoE) announced a 25-basis-point rate cut, lowering its policy rate to 3.75%, the lowest level since February 2023, in line with expectations. This marks the BoE's first rate cut since August, following two consecutive meetings of unchanged rates. The central bank also adopted a more cautious forward guidance, with the Monetary Policy Committee (MPC) indicating that current evidence suggests borrowing costs will continue to decline next year. However, in a new warning, the BoE stated that as it approaches the neutral rate (a level neither stimulating nor restraining inflation), future rate-cut decisions will require careful deliberation. "We still believe rates are on a gradual downward path," Governor Andrew Bailey said in a statement accompanying the meeting minutes, "but with each cut, the judgment on how much further to go becomes more challenging." The minutes suggested the BoE is nearing the end of its easing cycle, cautioning that policy restrictiveness has diminished and the scale of 2024 easing will "depend on the evolution of the inflation outlook."
Meanwhile, the European Central Bank (ECB) kept its three key rates unchanged for the fourth consecutive meeting, maintaining the deposit rate at 2.00%, the main refinancing rate at 2.15%, and the marginal lending rate at 2.40%. The ECB expressed a more optimistic view on the eurozone economy, noting resilience amid global trade shocks and heightened geopolitical uncertainty. At the press conference, ECB President Christine Lagarde emphasized that while policy is in a "favorable position," this "does not mean we are static." The Governing Council unanimously agreed that "all policy options should remain on the table," committing to a meeting-by-meeting, data-dependent approach without predefining any rate path.
Key data releases to watch today include Germany’s January GfK Consumer Confidence Index, UK November seasonally adjusted retail sales (MoM), Canada’s October retail sales (MoM), the eurozone’s December preliminary Consumer Confidence Index, US November existing home sales (annualized), and the final December University of Michigan Consumer Sentiment Index. Additionally, the Bank of Japan’s midday rate decision warrants close attention.
**USD Index** The USD Index consolidated with a marginal daily gain, currently trading near 98.40. Support came from technical buying around 98.00 and upbeat US initial jobless claims data, though weaker-than-expected inflation figures capped upside. Resistance is eyed at 98.80, with support at 98.00.
**EUR/USD** The euro dipped slightly, pressured by profit-taking and a stronger USD, but losses were limited as the ECB’s hold and hawkish-leaning signals provided a floor. The pair now trades near 1.1720, with resistance at 1.1800 and support at 1.1600.
**GBP/USD** Sterling edged higher, buoyed by the BoE’s expected 25bps cut and hawkish tilt reinforcing expectations of a nearing end to easing. However, USD strength on solid jobs data capped gains. The pair hovers near 1.3380, with resistance at 1.3450 and support at 1.3300.
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