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Market Update

The dollar was much stronger this morning, benefiting from the release of strong retail sales, while sterling climbed after a hot inflation release pointed to a December Bank of England interest rate hike.

The latest catalyst for these dollar gains was the release of surprisingly strong U.S. retail sales data on Tuesday, which climbed 1.7% on the month in October.

This added to the momentum generated last week by consumer prices surging at the highest rate since 1990 and could encourage the U.S. Federal Reserve to accelerate the tapering of its asset purchase program, likely bringing forward the timetable of interest rate hikes.

At the same time, European Central Bank President Christine Lagarde has this week pushed back on the idea of her central bank lifting interest rates in the near future, warning that tightening monetary policy now to rein in inflation could choke off the Eurozone’s recovery.

Elsewhere, GBP/USD rose 0.3% after British inflation surged to a 10-year high last month, cementing expectations that the Bank of England will raise interest rates next month, which would make it the first G7 central bank to do so since the pandemic.

October’s CPI inflation hit 4.2%, above the 3.9% estimated and well north of the Bank’s 2% target. It marked a steep acceleration from the 3.1% reading in September and underlines that inflation is becoming more of a problem, not less. Core inflation also surged to 3.4%. The good news is that pay is up 5.8%.

This comes the day after the release of stronger-than-expected U.K. employment data even with the end of the government’s job-protecting furlough scheme.

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