FX markets are reacting to softer UK inflation data and mixed signals from the U.S. labour market, putting renewed pressure on sterling and the dollar. With central bank expectations shifting, now is a key moment to stay informed.
Key Insight:
- Sterling slipped after failing to hold onto yesterday’s momentum
- U.S. jobs numbers painted a mixed economic picture
Market Recap:
Markets saw notable USD selling following uneven U.S. labour data, which showed the unemployment rate climbing to 5.1%, the highest level since early 2021. Employment figures were volatile, with October revised to a loss of 105,000 jobs, while November posted a modest gain of 64,000. The initial dollar weakness triggered repositioning across FX markets, though the greenback managed to regain some ground into the close of U.S. trading.
Sterling outperformed after UK PMI data surprised to the upside, supported by a pickup in services activity and the strongest rise in manufacturing output in over a year. However, earlier in the morning data pointed to a cooling UK job market reinforcing expectations that the Bank of England may deliver a rate cut later this week.
The euro underperformed against the pound, pressured by weaker-than-expected services and manufacturing PMIs. Survey commentary pointed to slowing economic momentum towards year-end, driven by a mild contraction in manufacturing and fading strength in the services sector.
Today's Market Watch:
After all components came in under expectations, UK CPIs should satisfy the BoE doves ahead of the central bank meeting on Thursday. CPI YoY eased to 3.2% year-on-year versus expectations of 3.5%, while core and services inflation also came in lower than forecast. This softer inflation backdrop has weighed on sterling this morning, as markets increased expectations for monetary easing, now pricing in around 67 basis points of rate cuts by the end of 2026, up from 58 basis points previously.
In the euro area, today’s CPI release represents the final estimate for November. With no material revisions expected, the data is unlikely to shift market sentiment or challenge recent hawkish commentary from the ECB, meaning volatility from this release should remain limited.
17th December 2025
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