Will kick off with USD this morning and for once GBP has outperformed the Dollar yesterday. Why? Jerome Powell (Head of the Federal Reserve) has suggested that there will be a slowdown in the rate hiking cycle. By no means are the Americans out of the woods tackling inflation however Powell suggested that there will only be a 0.5% hike this month compared to the predicted 0.75%. This is key to GBP below…
Additionally draconian Covid measures are still in force within China which is invariably holding back the world’s second-largest economy; hopefully as the New Year unfolds these measures are lifted allowing freer flowing exports to the UK.
So why has GBP spiked? GBP has followed global stocks lower through 2022 as the weight of Fed rate hikes weighed on sentiment and diminished the value of stocks. This is because the UK runs a large current account deficit, meaning GBP’s value is sensitive to global investor flows and struggles when investors are nervous. But when investors are confident more money finds its way into the UK, plugging the current account deficit and supporting GBP. Also much like the Americans above, we are due an interest rate rise however there have been no red flags (as of yet) with any reduction in terms of consistency or amount.
Euro Area annual inflation comes in at 10% for November, down from 10.6% in October to post its first decline since July 2021. Energy continues to have the highest annual rate but declined from 41.5% in October to 34.9% in November. Food, alcohol and tobacco prices rose to an annual rate of 13.6% compared to 13.1% in October. Core inflation data which excludes energy, food, alcohol and tobacco was steady and matched estimates with a print of 5%. Faring better than expected…
Have a good weekend all!