UK data disappoints and puts sterling under some pressure
Daily Currency Update
The monthly index of demand for staff from the Recruitment and Employment Confederation (REC) in the UK weighed on the UK pound as it fell in November to 54.1 from 56.7 in October by testing the lowest levels since February 2021. UK house price data has also massive disappointed, showing prices have dropped by the biggest percentage since the Covid pandemic, and this combined with supply led inflation in the UK, with food supply a major issue into the winter months, there could be some pressure on the pound over the next few weeks.
Next week's Bank of England decision will also be watched closely for signs of how the bank will deal with this latest bout of supply led inflation, and weak growth, which could leave the bank between a rock and a hard place in terms of interest rate hikes. Hike too quickly, and the bank threatens to squeeze households who are already in a difficult position, but allowing inflation to remain at these levels for a longer period of time is also unhealthy.
The US Dollar sold off during yesterday's trading hours with EUR/USD touching the 1.0550 handle again and GBP/USD above 1.2230. Over night we saw both pairs drop but have recovered this morning. The US Dollar maintains its safe haven status, even with threats of a US recession coming to a head, which one would think may weaken the currency, but instead, investors continue to use the dollar as a way of avoiding risk.
All eyes are on Christine Lagarde, who speaks later today and the market will focus on clues as to what the European Central Bank may do next week. Inflation is a concern in the single bloc too, and clues around how hawkish the bank is willing to be, may support the Euro further against the US Dollar.
China and it’s COVID restrictions remain in focus and now US Chief Medical Officer Dr Anthony Fauci is urging Beijing to use western vaccines. There has been a significant U-turn in the country, with the government stopping people from leaving the house and having to show COVID passports to a more 'normal' setup. This will be in theory an event that reintroduces risk appetite into the market, as there could be expectation that we will see a normalisation in supply chains and prices, but if cases of COVID start to rise rapidly in the area, there is always a risk this is u-turned again. The US Dollar will be volatile as this situation unfolds.
- GBP/USD: 1.2085 - 1.2175 ▼
- GBP/EUR: 1.1485 - 1.1610 ▼
- GBP/AUD: 1.7815 - 1.8175 ▲
- EUR/USD: 1.0460 - 1.0545 ▲