Market Update

The Dollar has continued it’s resurgence against both Sterling & Euro as inflation climbs to a 30 year high hitting 6.2%. Pressure is mounting on The Fed Reserve to raise interest rates as inflation has continued to intensify after seeing a rise in energy costs, continued supply shortages and an increase in consumption has sent US inflation to levels not seen since the early 90’s. Although The Fed Reserve have continually maintained that inflation increases will be transitory, the 6.2% inflation reading has come as a bit of a shock to markets.

Energy prices are currently 30% up from a year ago, whilst the price of food is also up 5.3% against the reading in October 2020. U.S consumers are now paying more for clothes, car parts and food amongst other products. This continued surge in inflation only places The Dollar in a dilemma, if The Fed won’t respond to high inflation it will be deemed negative for the currency and if The Fed brings forward it’s plans on interest rates then it should bring more strength. Right now The Fed need to consider how much longer they can sustain high inflation as well as how high they would be content with it rising.

Earlier this morning, Britain’s GDP figures showed a slowing down in economic growth for the 3rd quarter, only growing by 1.3% against the expected 5.5%. Although a monthly breakdown suggests that Septembers growth was just shy of pre-pandemic levels, successive disappointing retail sales has played a major part in the quarterly growth struggling. Sectors that did see some joy were in particular the hospitality industry with Hotels & Restaurants up 30% and arts and entertainment up by just over 19%, partly due to the easing of restrictions and reopening of the economy. Contrary to this, the manufacturing sector suffered the biggest hit with car factories facing a global shortage of semiconductor chips, as well as construction which has seen higher input prices and delays to availability of certain products.

Next up for The UK is the release of employment figures next Tuesday (16th November). The Bank of England decided to fall back on a much anticipated rate raise last week, sounding out the uncertain fall-out from the furlough scheme and the potential strain on the economy. Any improvement on the job front will no doubt put The Bank of England under pressure to raise interest rates sooner rather than later as we continue to battle with rising inflation.

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