GBP/USD hovers near 1.2600 as lower US Treasury bond yields weigh on the dollar following President-elect Donald Trump’s announcement of Scott Bessent as US Treasury Secretary. However, market expectations surrounding Trump's administration suggest it will reignite inflation and may hinder the Fed's upcoming policy decisions. On the pound front, sterling faces pressure as last week's data revealed an acceleration in underlying price growth within the UK, diminishing expectations of a Bank of England (BoE) rate cut next month. The latest annual UK inflation accelerated sharply to 2.3% in October, above the BoE's 2% target. In the absence of significant economic data from both markets, the market sentiment surrounding central banks' interest rate decisions and speeches by BoE Deputy Governor Clare Lombardelli and external policy member Swati Dhingra will guide the GBP/USD exchange rate.

EUR/GBP Firms on ECB Rate Speculations

EUR/GBP edges higher near 0.8320 despite rising speculation that the European Central Bank (ECB) will implement aggressive interest rate cuts to support a slowing regional economy. Friday's downbeat Eurozone Purchasing Managers Index (PMI) data signaled the potential for a more significant half-point rate cut from the ECB. The preliminary HCOB Composite PMI declined to 48.1 in November from 50 in October, missing forecasts of 50. The Manufacturing PMI fell to 45.2 from 46, while the Services PMI slid into contraction at 49.2 from 51.6. On the sterling front, retail sales contracted faster than expected, falling by 0.7% MoM compared to a 0.1% increase in September. YoY, sales increased by 2.4%, below the 3.4% forecast and the prior figure of 3.2%. The FPC Meeting Minutes, preliminary CPI, Core CPI Flash Estimate YoY, and German Retail Sales figures will influence EUR/GBP exchange rates in the upcoming sessions.

USD/CAD Gains on Softer US Dollar

USD/CAD trades near 1.3960, supported by a softer dollar amid lower US Treasury yields and Trump’s announcement of Scott Bessent as Treasury Secretary. However, the markets anticipate that Trump's administration will renew inflationary pressures and impact the Federal Reserve's (Fed) policy easing approach, which might help limit the USD's losses. On the loonie front, retail sales increased by 0.4% MoM in September, aligning with the market forecast. Retail Sales ex Autos climbed 0.9% MoM in September versus -0.8% prior, beating the estimate of 0.5%. Market speculation that the Bank of Canada (BoC) will cut interest rates consecutively for the second time by 50 basis points (bps) continues to influence the CAD. Oil price dynamics, a shift in geopolitical risks, including Middle Eastern conflicts, and broader market sentiment around the risk-averse mood will drive the USD/CAD pair.

GBP/JPY Firms on BoE Rate Bets

GBP/JPY stabilised near ¥194.20 as sterling gains support from market expectations that the Bank of England (BoE) may adopt slower pace policy easing. However, sterling faced challenges on Friday due to disappointing economic data. UK retail sales declined more sharply than anticipated in October while the flash S&P Global/CIPS Composite PMI for November declined below the 50.0 threshold, indicating a contraction in economic activity for the first time since October 2023. On Japan's front, Japan's Leading Economic Index for September was revised to 109.1, falling short of the anticipated 109.4, though still representing an improvement from August's final reading of 106.9, which marked the lowest level since October 2020. In the upcoming sessions, uncertainty surrounding the Bank of Japan's (BoJ) future rate hikes and a prevailing risk-on market environment, coupled with speculation around the BoE's policy decision, could influence the GBP/JPY exchange rate.

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