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Dollar holds steady ahead of Fed decision
Investors are also closely watching policy decisions from the Bank of England and the Bank of Japan this week
The dollar remains steady ahead of the Fed’s rate cut and updated economic outlook.
UK labor market softens, but wage growth remains elevated, supporting Sterling.
Investors are watching BoJ and BoE policy decisions for further clarity
Markets see BoE delaying rate cuts until early next year.
The dollar index hovered near 106.8 on Tuesday as investors adopted a cautious stance ahead of the Federal Reserve’s monetary policy announcement. While the Fed is expected to cut interest rates by 25 basis points, the focus remains on its updated economic projections, especially for rate cuts in 2025.
Market sentiment has tempered expectations for aggressive easing next year, given concerns over inflation’s potential resurgence and political uncertainties, including Donald Trump’s return to the White House. Meanwhile, the latest S&P Global Flash PMIs showed stronger-than-expected growth in private sector activity, driven by a robust services sector despite continued weakness in manufacturing.
UK job numbers decline, but wage growth stays elevated
The UK labor market showed signs of cooling in November, as payrolled employment dropped by 35k (-0.1%) to 30.4 million. Median monthly pay growth eased to 6.3% y/y, down sharply from 7.9% in the previous month.
In the three months to October:
- The employment rate edged up to 74.9% (+0.1%).
- The unemployment rate increased slightly to 4.3% (+0.1%).
- The economic inactivity rate fell to 21.7% (-0.2%), showing modest progress in returning inactive workers to the labor force.
Wage growth remained robust:
- Average earnings excluding bonuses rose 5.2% y/y (up from 4.9%).
- Including bonuses, earnings also climbed 5.2% y/y, accelerating from 4.4%.
The strong wage data supports Sterling, which remains resilient alongside improved UK services PMI data. Underlying price pressures persist despite concerns stemming from the Autumn Budget uncertainty.
The Bank of England is expected to hold rates steady at this week’s meeting. Markets currently price a 75% chance of a rate cut by February, with four 25bps cuts anticipated through 2025. For now, Sterling remains well-supported.
