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Market Update

• Posted by currencies in Bank of England, Currency, Dollar, EUR, GBP, Inflation, Rate Cuts, Sterling, UK, Uncategorised
• January 19, 2024
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On Thursday we heard from Christine Lagarde in Davos, given us an small indication that ECB could start to cut rates in the Summer but she was stern on the topic of overconfidence in the market could halt their inflation policy and its vital to continue being data-driven. European inflation grew for its first time in December since April 2023, and the cold weather being the biggest contribution to increased energy prices.

Federal Reserve member Bostic, which has been very hawkish on the policies, said yesterday that his initial thoughts of rate cuts taken place in Q4, now is more likely to happen in Q3. Market has been speculating that it could already happen in March. In the last weeks we have seen US data shown signs that the US economy is performing better than forecasted to high interest rates and that

UK retail sales show signs of disruption for economic activity in December, after a decline to -2.4%  it’s sharpest decline since Covid. Food stores being the largest underperformer followed by department, clothing and household good stores also reporting poor sales. A combination of consumers holding off on Christmas shopping but also utilising sales opportunities early on, i.e. black Friday sales. A big slump month on month for retail sales, but even quarterly we can see a decrease in performance.

Looking at performances across currency pairs, GBP has been the better out of the three with strength against both the EUR and USD. With the current economic situation, is this only going to be temporary? Bank of England is under pressure with higher inflation levels than both Europe and the US and also an underperforming economy – pointing to monetary actions being required sooner rather than later for relief.