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Money markets create some FX volatility this morning

The Pound dips following a softer UK wage outcome in November..

The headline today is that UK wage growth is falling faster than anticipated, in what is very good news as far as inflation is concerned. After spending 4 consecutive months at over 8%, wage growth (a key inflation driver) is now at 6.5% and is expected to dramatically fall further in the coming months.

This is significant news in terms of the BoE and what they decide to do with interest rates. The odds of a May rate cut have risen following the release, which has direct ramifications for the Pound. Interest rates is the markets main driver and whichever central bank cuts first and then cuts fastest, will see its linked currency get weaker in the short term. 

Currently, the majority of economists see a 125bp rate cut through 2024 for the UK. But many are standing firm that 75bp will eventually be realised. The latter helps the Pound, the former helps the consumer. The US is expected to move first and fastest as it stands, followed by the ECB and then the BoE.

Elsewhere, ING bank have today released research to suggest the UK is forecast to hit the BoE's 2% headline inflation target by May. Deutsche bank also share the same opinion. Make of that what you will with UK inflation currently at 4%..