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Market Update

• Posted by currencies in Bank of England, Currency, Dollar, Economy, election, EUR, Fed, GBP, Inflation, Rate Cuts, Sterling, UK, Uncategorised
• January 15, 2024
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Sterling exchange rates closed on Friday net positive for the week after GDP numbers showed that the UK economy rebounded in November- however, the part that perhaps wasn’t reported as much is that over the quarter the economy contracted by 0.2%. Overall this is following the trend that the UK economy is not growing at a fast pace and that interest rates may have to be cut to encourage consumer spending and borrowing- although many traders are waiting for the Fed to set the pace with rate cuts- the UK may need to move faster than the U.S, however with inflation still high, it does leave the BoE in an interesting position on how to make their next moves- I do not envision an aggressive rate cut cycle this year as it could be detrimental to the economy.

As far as data is concerned this week- our first meaningful releases are on Tuesday. with German inflation data to begin the day, expected to come in at 3.7%, which would be higher than the previous figure- which we could potentially see in the Eurozone numbers as a whole too. We also have UK unemployment numbers which are expected higher at 4.3% with lower average earnings, At 10am on Tuesday we have ZEW economic sentiment out of the Eurozone and Germany where I expect sentiment to be slightly lower for January.

On Wednesday we have UK inflation numbers where core is expected to fall to 4.9% and YoY numbers are expected to drop to 3.8%- though this is a welcome fall in prices, it is still quite a bit above 2% so this will not be spurring on the BoE to do any rate cuts just yet- but it will be a positive release either way. We have the same for Europe where we are again expecting a fall in inflation, however as mentioned above, it is worth seeing if Germany’s inflatiob rise seeps into this particular release. Across the pond we have Retail Sales which are expected higher at 0.4% which should be positive for the USD, with a few Fed speakers later in the afternoon.

On Thursday we have weekly jobs numbers out of the U.S, alongside building permits data which is expected positive, however jobless claims is expected higher so I feel these releases may just end up balancing out.

Finally on Friday we have UK retail sales data for December which is expected higher, spending should have been good over Christmas so this should be positive for the Pound.