The British pound fell in European trading on Tuesday against a basket of global currencies, pulling back from a two-month high against the US dollar, amid relatively active correction and profit-taking, alongside investor reluctance to build new long positions ahead of key UK economic data.

These data are expected to play a decisive role in shaping the Bank of England’s policy decision later this week, with current expectations pointing to a 25-basis-point cut in UK interest rates to a 3.75% range, the lowest level since December 2022, marking the fourth monetary easing step this year.

Price Overview

British pound price today: The pound slipped more than 0.1% against the dollar to $1.3362, from an opening level of $1.3377, after recording an intraday high of $1.3384.

On Monday, the pound posted gains of less than 0.1% against the dollar, resuming its upward move that had paused on Friday due to correction and profit-taking from a two-month high at $1.3438.

UK Interest Rates

Market pricing for a 25-basis-point rate cut by the Bank of England at this week’s meeting remains steady above 90%.

The Bank of England meets on Thursday to discuss appropriate monetary policy in light of recent economic developments in the UK, particularly as concerns over financial stability have eased following the announcement of a relatively moderate autumn budget.

Voting results from the Bank of England’s November meeting, when rates were held unchanged, showed a growing inclination among policymakers toward delivering a fourth easing move this year.

Updated policy guidance and comments from the Bank of England governor are expected to provide strong signals regarding the path of UK interest rates in 2026.

Key Data

To reassess the above expectations, investors are closely watching the release of highly important UK economic data throughout the day, including labor market indicators, alongside other readings covering the performance of key sectors of the economy.

Outlook for the British Pound

At Economies.com, we expect that if UK data come in less hawkish than markets anticipate, expectations for a UK rate cut this week will increase further, adding more downside pressure on the British pound against a basket of global currencies.

The Japanese yen rose in Asian trading on Tuesday against a basket of major and secondary currencies, extending its gains for a second consecutive session against the US dollar and hitting a two-week high, supported by negative pressure on the US currency ahead of the release of US monthly jobs data.

The yen’s advance is also supported by increased demand ahead of the Bank of Japan’s meeting on Thursday and Friday, as markets widely expect a 25-basis-point rate hike, marking the second step of monetary tightening this year.

Price Overview

Japanese yen price today: The US dollar fell 0.35% against the yen to ¥154.70, the lowest level since December 5, from an opening level of ¥155.21, after recording an intraday high of ¥155.24.

The yen ended Monday’s session up 0.4% against the dollar, marking its third gain in the past four days, amid continued unwinding of yen carry trades.

US Dollar

The US dollar index fell about 0.1% on Tuesday, extending losses for a second straight session and approaching a two-month low, reflecting continued weakness in the US currency against a basket of global currencies.

The dollar has remained under pressure since last week’s Federal Reserve meeting, after the outcome was less hawkish than markets had expected, reviving bets on the continuation of the US rate-cut cycle through 2026.

To reassess these expectations, traders are awaiting later today the release of the long-delayed US jobs report for October, which had been postponed due to the federal government shutdown.

Bank of Japan

The Bank of Japan meets on Thursday and Friday to discuss appropriate monetary policy for the world’s fourth-largest economy, amid strong expectations of a 25-basis-point rate hike to a range of 0.75%, the highest level since 2008 during the global financial crisis.

Markets are closely watching Governor Kazuo Ueda’s comments for guidance on the policy outlook for 2026, as expectations grow that the Japanese government may pursue further fiscal expansion, adding complexity to the policy backdrop facing the central bank.

Japanese Interest Rates

Following recent inflation and wage data in Japan, market pricing for a 25-basis-point rate hike at this week’s meeting has stabilized above 90%.

Bank of Japan Governor Kazuo Ueda recently struck a more optimistic tone on the Japanese economy, saying the central bank will assess the pros and cons of raising interest rates at its upcoming policy meeting.

Three government officials told Reuters that the Bank of Japan is likely to raise interest rates this December.

Views and Analysis

Analysts at Société Générale said they expect the Bank of Japan to raise interest rates to 1% by July next year, while also anticipating a rate hike when the policy decision is announced on Friday.

They added that once rates reach 1%, the Bank of Japan will enter uncharted territory, making a cautious tightening pace more likely, with gradual 25-basis-point increases and close monitoring of the impact on economic growth and price levels.

Société Générale analysts also expect intervals of no less than nine months to a full year between successive rate hikes.

Most cryptocurrencies fell in Monday trading as risk appetite weakened and investors pulled back from equities and bitcoin, ahead of key US economic data.

Investors are awaiting the release of US nonfarm payrolls data for November on Tuesday, which will also include the delayed October reading.

US consumer price inflation data is also due later this week, and is expected to play an important role in shaping Federal Reserve policy expectations.

New York Fed President John Williams said on Monday that last week’s interest rate cut by the US central bank has placed monetary policy in a good position to deal with the period ahead, adding that he expects inflation to ease as the labor market slows.

He stressed that bringing inflation back to the 2% target remains “critically important,” provided it does not create undue risks for the labor market.

Ripple

In trading, Ripple fell 4.6% to $1.89 at 21:42 GMT, according to CoinMarketCap.

The Canadian dollar was broadly steady against most major currencies on Monday following the release of inflation data that showed price growth remained unchanged.

Inflation in Canada was flat last month, while core inflation measures recorded a general slowdown, as faster food and some goods prices were offset by slower growth in services prices.

Data from Statistics Canada released on Monday showed headline inflation rose 2.2% year on year in November, matching the pace seen in October and coming in below the $2.3% median forecast in a Bloomberg survey of economists.

On a monthly basis, the consumer price index increased 0.1%, in line with expectations.

Following the data, government bonds rallied, pushing the benchmark two-year government bond yield down to 2.57% by 9:48 a.m. Ottawa time. At the same time, the Canadian dollar, or loonie, trimmed earlier gains against the US dollar.

The Bank of Canada’s preferred core inflation measures — known as the median and trim — slowed to an annual pace of 2.8%, down from 3.0% previously. On a three-month moving average basis, these measures eased to 2.3% from 2.6% in October.

The central bank has recently placed less emphasis on these specific indicators, noting that a broader range of measures suggests underlying inflation is hovering around 2.5%.

Veronica Clark, an economist at Citi, told BNN Bloomberg Television that there are “some encouraging signs that core inflation is slowing,” while adding that rental costs are still showing “a degree of stickiness.”

Overall, underlying price pressures eased or stabilized in November. Excluding food and energy, prices rose 2.4% year on year, down from 2.7% in October. Inflation excluding gasoline increased 2.6% for the third consecutive month, while the central bank’s former core measure — CPI excluding eight volatile components and indirect taxes — remained steady at 2.9%.

Despite this, inflation pressures broadened, with the share of goods and services posting annual inflation above 3% rising to around 42% of the CPI basket, up from 34% previously.

Overall, the report shows headline inflation continuing to move toward the central bank’s 2% target, even as some core measures remain closer to 3%. The Bank of Canada is unlikely to be alarmed by lingering core pressures, given its view that slack persists in the Canadian economy amid the impact of US tariffs on key sectors, weighing on business investment and consumer spending.

The central bank held its policy rate unchanged at 2.25% last week and reiterated that borrowing costs are “at about the right level” to support growth while keeping inflation under control. Governor Tiff Macklem set a high bar for any policy shift, saying the bank would act only in the event of a “new shock or an accumulation of evidence” that would “materially change the outlook.”

Policymakers expect inflation to remain close to 2%, a level it has hovered around for more than a year.

Charles St-Arnaud, chief economist at Servus Credit Union, said in an email that there are still “some signs that core inflation remains sticky, with momentum in certain measures staying elevated and inflationary pressures broadening.” He added that “there is nothing in today’s report that would cause immediate concern for the Bank of Canada or affect near-term monetary policy.”

Royce Mendes, managing director and head of macro strategy at Desjardins Securities, said in a note to investors that the data point to generally “benign price pressures.” He added that policymakers can take comfort that a stagflationary environment is not emerging, and that downside risks to growth and inflation are likely to become more significant in the months ahead.

Mendes noted that ongoing uncertainty surrounding the future of the US–Mexico–Canada Agreement is expected to weigh on economic activity, while fiscal stimulus is unlikely to play a major role until later in the year.

In November, lower prices for travel and accommodation, along with slower rent inflation, weighed on headline inflation. These effects were partly offset by higher grocery prices and a smaller decline in gasoline prices.

The drop in travel prices was partly driven by base effects, following Taylor Swift concerts held in Toronto in November 2024.

Food prices rose 4.7% in November, the largest increase since December 2023, driven by a surge in fresh fruit prices and continued strength in beef and coffee prices.

Price growth accelerated in five provinces, led by New Brunswick.

This report marks the first of two inflation releases ahead of the Bank of Canada’s next policy decision on January 28. Traders expect the central bank to keep rates unchanged until at least October 2026, with a rate hike priced in around that time.

In currency markets, the Canadian dollar was steady against the US dollar at $0.7263 as of 21:35 GMT.

Australian dollar

The Australian dollar fell 0.2% against the US dollar to $0.664 at 21:35 GMT.

US dollar

The US dollar index slipped 0.1% to 98.3 by 20:57 GMT, after touching a high of 98.4 and a low of 98.1.

Investors are awaiting the release of US nonfarm payrolls data for November on Tuesday, including the delayed October reading.

US consumer inflation data is also due later this week, which is expected to play a key role in shaping Federal Reserve policy expectations.

New York Fed President John Williams said on Monday that last week’s US rate cut has placed monetary policy in a good position to navigate the period ahead, adding that he expects inflation to ease as the labor market cools.

He emphasized that returning inflation to the 2% target is “critically important,” provided it does not create undue risks for the labor market.