Markets spent another day in utter confusion as they continued to digest Tuesday's US inflation report. USD started the day higher but after jobless claims numbers came in higher, we saw USD weaken back to the lows seen on Tuesday before finishing unchanged on the day. On a positive note for euro buyers, GBPEUR rose off the six-month low support level for the third time in a month suggesting that markets are reluctant to trade the currency much lower. GBP in general was boosted by hawkish comments from BoE deputy governor Dave Ramsden, who stated that interest rates will remain higher than they were in the aftermath of the global financial crisis. Obviously, this goes against the current market pricing of rate cuts being projected for next year.
This morning UK retail sales have disappointed with sales declining by 0.3% in October and September's numbers were revised lower to show a decline in sales of 1.1%. The numbers continue to illustrate how the UK economy continues to be stifled by the 14 consecutive interest rate rises by the Bank of England. GBP is lower across the board.
* Daily move - against G10 rates at 7:30am, 17.11.23
** Indicative rates - interbank rates at 7:30am, 17.11.23
A combination of lower inflation and sober economic data from the UK looks likely to weigh on GBP in the coming months as money markets bring forward when the first rate cut will be conducted by the Bank of England – currently, interest rate traders are pricing in a 0.25% rate cut in June. The next big economic data point for GBP will be next Thursday's PMI numbers for November. USD continues to consolidate following Tuesday's drop as markets fail to follow through with any clear direction. EUR will be in focus at 10am with the final inflation readings for October. Currently, markets are pricing in a full 100bps worth of rate cuts by the ECB next year with the first 0.25% rate cut priced for April 2024. A deviation from today's expected numbers will have an impact on rate projections and thus an impact on EUR. Currently, the EUR is at its strongest level versus GBP for 6 months and versus USD for 2 months. A host of speakers from the Fed, ECB and BoE will also be in focus today.
Tuesday saw the biggest drop on the USD index for this year following that lower-than-expected inflation print but since then greenback has been trading in a very tight rate whilst markets continue to digest what those numbers mean in the longer term. Next week's data docket is pretty quiet and with Thanksgiving next Thursday, we would expect USD to continue this directionless trend.
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