Sterling skidded in European trade on Friday to a seven-month nadir against the US dollar, sharpening losses for the third straight session and about to mark the second weekly loss in a row after the Bank of England held interest rates unchanged as expected, but was overall less bullish than estimated.

The bearish outlook boosted the odds of a 0.25% UK interest rate cut in February 2025 as investors now wait for more data to gather clues. 

The Price 

The GBP/USD pair slipped 0.2% to $1.2475 in early trading today, hitting May 9 lows before recouping most of the losses. 

The pound closed down 0.55% on Thursday, the second loss in a row, following the BOE’s policy meeting.

Weekly Trades 

The pound is down 1.15% so far this week against the US dollar, about to mark the second weekly loss in a row.

BOE 

The Bank of England held interest rates unchanged at 4.75% at the December 19 meeting, the lowest rate since May 2023, thus matching analysts' expectations. 

BOE members voted in a 6-3 majority in favor of holding rates, with the three holdouts voting for a 0.25% interest rate cut, while analysts expected a 7-2 margin.

The BOE said it’s still committed to restrictive monetary policies until inflation is sustainably back to 2%, with economic conditions analyzed closely every meeting. 

Bailey

The Bank of England Governor Andrew Bailey said the gradual path of interest rate cuts is still the right approach.

Bailey said the markets are expecting a rate cut in February but he cautioned from ongoing uncertainty, which precludes the ability to specify a timing or a manner of the next rate cut.

UK Rates

The odds of a 0.25% UK interest rate cut in February 2025 rose from 25% to 55%. 

Analysts expected 53 basis points of total rate cuts overall in 2025, up from 46 basis points in previous forecasts.

UK retail sales rose 0.2% m/m in November, below estimates of 0.5%, and down from 0.7% in the previous reading.

Retail sales are a crucial indicator of the health of consumer spending, which constitutes 70% of total GDP in the country. 

The Japanese yen rose in Asian trade on Friday against a basket of major rivals, trying to recover from five-month lows against the dollar amid short-covering and after Japanese officials expressed concern about the yen’s weakness. 

Recent data showed inflation rose more than expected in Japan, increasing inflationary pressures on Bank of Japan policymakers and paving the way for an interest rate hike in January.

The yen is about to mark the third weekly loss in a row as the BOJ maintained interest rates unchanged this week, while BOJ Governor Kazuo Ueda remained cryptic about the pace of normalizing policies.

The Price

The USD/JPY pair fell 0.4% today to 156.83 yen per dollar, with the highest since July 17 at 157.92.

The yen lost 1.7% on Thursday against the dollar, marking the second loss in a row following the BOJ’s policy meeting.

Japanese Authorities 

Japan’s finance minister Katsunubo Kato expressed concerns on Friday from sharp movements in the forex market, led by speculators, and asserted that authorities will confront such heavy movements.

It’s quite rare for Japanese officials to directly express concerns about the forex market, which indicates readiness to intervene if necessary. 

Main Inflation

Earlier Tokyo data showed main consumer prices rose 2.7%% in November, beating estimates of 2.6%, and up from 2.3% in October.

Following the data, the odds of a 0.25% interest rate hike by the Bank of Japan in January rose from 45% to 55%.

Weekly Trades

Across the week, the yen is down 2.1% so far against the dollar, about to mark the third weekly loss in a row.

The BOJ 

The Bank of Japan voted to hold interest rates unchanged at 0.25%, the highest since 2008, as expected by most analysts.

Eight out of nine BOJ members voted in favor of holding rates flat, while a single member unexpectedly voted in favor of a 0.25% interest rate hike. 

The BOJ noted that Japan’s economy is recovering moderately, but still shows some weakness, with the BOJ maintaining its estimates that consumption is improving moderately, with prices remaining high.

Ueda

BOJ Governor Kazuo Ueda said the decision to hold interest rates was based on assessing wage directions and doubts about foreign economies and the policies of the upcoming US administration.

Ueda said the BOJ requires another step before moving ahead with another rate hike, and sustainable wages growth would be such a step.

Most cryptocurrencies fell on Thursday as the risk appetite tapered off following the Federal Reserve’s hints at slowing down the pace of policy easing next year.

The Fed decided to cut interest rates by 25 basis points on Wednesday, the third such cut in a row, following a 0.5% cut in September, and a 0.25% cut in November. 

Thus, US interest rates have now reached the range of 4.25%-4.5% as expected. 

The Fed pointed to steady US growth and improving labor markets, with unemployment still at low levels.

Earlier data showed US GDP grew 3.1% y/y in the third quarter, beating estimates of 2.8%, and up from 2.8% in the previous preliminary reading, and after a 3% increase in the second quarter. 

US unemployment claims fell to 220 thousand in the week ending December 14, beating estimates of 229 thousand, and down from 242 thousand in the previous reading. 

Both the Bank of Japan and Bank of England decided to maintain interest rates unchanged today, as expected by analysts.

Ethereum

On trading, ethereum fell 9.1% on Coinmarketcap as of 20:30 GMT to $3364.8.