**Frankfurt, Germany –** The single currency faced renewed headwinds on Friday, with the euro-dollar exchange rate extending its decline for a fourth consecutive session, trading at 1.1715. This downward pressure coincided with the European Central Bank's (ECB) decision to maintain its benchmark interest rates at their current level, coupled with an explicit refusal by President Christine Lagarde to pre-commit to a specific trajectory for future monetary policy adjustments. While the ECB did revise its economic growth projections upwards for 2025 and 2026, suggesting a more optimistic outlook for the bloc's economic performance, this did little to assuage market concerns about the immediate path forward.
The ECB's stance contrasted sharply with developments in the United States, where the November Consumer Price Index (CPI) data revealed a welcome deceleration in inflationary pressures, easing to an annual rate of 2.7%. However, market participants exhibited a degree of caution, acknowledging potential limitations in the data collection methodologies. Simultaneously, a softer-than-expected US jobs report, indicating a weakening labour market with nonfarm payrolls adding only 64,000 positions and the unemployment rate ticking up to 4.6%, significantly undermined the dollar's strength. This weakness was further evidenced by the DXY Dollar Index falling 0.35% to 97.91.
Across the Atlantic, the United Kingdom presented a mixed economic tableau. While the pound sterling experienced a notable surge against the dollar, with the GBPUSD pair climbing 0.42%, domestic labour market figures painted a less rosy picture. The UK unemployment rate ascended to its highest point since early 2021, suggesting a potential softening in employment conditions. Despite this, robust business activity, as indicated by S&P Global Purchasing Managers' Indices (PMIs), has fuelled significant expectations for the Bank of England (BoE) to commence interest rate cuts imminently, with analysts assigning a 92% probability of such an action on Thursday.
Germany, a bellwether for the Eurozone economy, exhibited signs of strain. The German GfK Consumer Confidence Survey indicated a further deterioration in sentiment, dropping to -26.9 in January. Furthermore, the German Producer Prices Index revealed a stagnation in factory gate inflation and, more concerningly, a contraction over the preceding twelve months, signalling a potential dampening effect on industrial output. Adding to the fiscal uncertainty within the bloc, France's parliament is poised to miss its year-end budget approval deadline, necessitating a special rollover law, a development that BBH FX analysts warned could precipitate further fiscal stress and act as a headwind for the euro.
In contrast, the Cypriot economy appears to be navigating a period of moderate expansion. The Composite Leading Economic Index (CCLEI) registered a modest year-on-year increase of 1.8% in November, driven by positive sentiment, a robust tourism sector, and favourable developments in retail, property, and lower oil prices, although these were partially offset by challenges in electricity production. The Economic Sentiment Indicator (ESI-CypERC) remained largely stable, albeit with a slight dip in overall business confidence, particularly within the services sector. However, a notable decline in the Economic Uncertainty Indicator for Cyprus, falling to 10.9 points, suggests a reduction in apprehension among consumers, contributing to the overall cautiously optimistic economic narrative on the island.