What’s been happening?

The US dollar plunged to multi-month lows over the past fortnight. US inflation cooled more than markets had expected, causing traders to massively scale back Federal Reserve interest rate hike bets.

Across the Atlantic, volatility continued to characterise GBP as worries about the UK’s cost-of-living crisis were partially offset by an upbeat mood in markets, which boosted the increasingly risk-sensitive pound. Overall, Sterling gained ground thanks to above-forecast data, although recession fears capped the upside.

Meanwhile, the euro was mixed. A drastic repricing of the US dollar helped buoy the single currency, thanks to EUR’s negative correlation with USD. However, the escalating conflict in Ukraine pressured the euro, particularly after a missile hit Poland, killing two.

What do you need to look out for?

Fed policy expectations could continue to drive the dollar over the next two weeks. A slowdown in the core PCE price index – the Fed’s preferred gauge of inflation – could hurt USD.

After UK inflation jumped above forecasts last week, focus now turns to the Bank of England (BoE) meeting in mid-December. Ahead of that decision, there are a number of speeches from BoE policymakers. Any hints about December’s rate hike could impact the pound.

Monetary policy expectations could also affect the single currency. If it looks like the ECB will raise rates steeply again at its next meeting, EUR could climb.