US Core Inflation Slows to 2.6%, Lowest Since Early 2021

US core CPI rose 2.6% y/y in November, the slowest pace since early 2021, while headline inflation climbed 2.7%. Core prices increased just 0.2% over the two month period ending November, restrained by declines in hotel stays, recreation, and apparel. Shelter costs rose 3% y/y, the smallest advance in over four years, while services excluding housing and energy rose 2.7% y/y, matching 2021’s lowest level. However, the 43 day government shutdown delayed data collection until late November when holiday discounts were offered, preventing month over month comparisons and raising questions about data reliability. 

Initial jobless claims in the US fell by 13k to 224k for the week ending December 13, reversing the prior week's upwardly revised 237k and slightly better than expectations of 225k.The decline suggests that the prior week's spike was largely due to seasonal distortions around the Thanksgiving holiday period rather than a weakening in the labor market. Continuing claims rose by 67kto 1.897mn. 

The European Central Bank kept its deposit rate at 2% for a fourth consecutive meeting, with unanimous support from policymakers. President Lagarde emphasized flexibility, keeping “all options on the table” while noting the eurozone economy is performing better than expected. New forecasts project inflation returning to the 2% target by 2028 after undershooting in coming years. 

The Bank of England cut interest rates by 0.25% to 3.75% following a narrow 5 to 4 vote. Despite the cut, the fourth this year and the lowest rate in nearly three years, the BoE signaled further reductions may slow. UK inflation remains the highest among G7 nations at 3.2%. The central bank revised its Q4 2025 growth forecast to 0 from 0.3%, reflecting economic contraction and business hesitancy ahead of the November budget. Policymakers remain split over persistent inflation risks versus weakening demand. 

The Bank of Japan raised benchmark interest rates to 0.75% from 0.5% on Friday, the highest level since 1995, after decades of ultra-loose monetary conditions.

Today's Economic Data and Events

11:00 UK Retail Sales Inc Auto Fuel Nov: forecast 0.3% MoM

19:00 US Existing Home Sales Nov: forecast: 4.15m

Fixed Income

The 2yr UST yield declined 2bps to 3.4829% while the 10yr UST yield declined 3bps to 4.1217%.

FX

The US dollar index edged up 0.06% to 98.427 following the cooler than expected CPI data. EURUSD rose 0.2% to 1.1722 after the ECB held rates steady as expected. GBPUSD edged up 0.04% to 1.3381 following the Bank of England’s rate cut. USDJPY fell 0.09% to 155.55 ahead of the Bank of Japan’s policy decision today, with markets expecting the BoJ to hold rates at 0.50%.

In commodity currencies, the Australian dollar weakened 0.12% to 0.6613 while the New Zealand dollar rose 0.02% to 0.5775. USDCAD fell 0.14% to 1.3777. USDCHF declined 0.16% to 0.7942 as the Swiss franc benefited from the weaker dollar environment.

In emerging markets, USDTRY rose 0.06% to 42.7397, USDINR gained 0.1% to 90.2513, and USDEGP was flat at 47.5825.

Equities

US equity markets rallied on Thursday following the cooler-than-expected inflation data. The S&P 500 rose 0.8% to 6,774.76, snapping a four-day losing streak. The NASDAQ gained 1.4% to 23,006 led by technology stocks, while the Dow Jones added 0.1% to 47,952.

European markets closed higher after the ECB and BoE decisions. The FTSE 100 rose 0.7% while the EuroStoxx 50 gained 1.1% and the DAX added 1.0%.

In Local equity markets, ADX surged 0.5% while DFM was down 0.5%. Saudi Arabia's Tadawul rose 0.4%.

Commodities

Oil prices were modestly higher amid geopolitical tensions. WTI crude rose 0.2% to settle at USD 56.15/b while Brent added 0.2% to USD 59.82/b.

Gold dipped 0.1% to around USD 4,333/oz. Silver declined 1.2% to USD 65.47/oz.