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The pound faces a big week with Wednesday's inflation figures
USD/GBP and EUR/GBP gained by around 0.3% and 0.4% respectively yesterday ahead of Wednesday’s UK inflation release. Sterling had enjoyed a strong end to last week after the Bank of England (BoE) suggested they shaded more hawkish on rates than other central banks.
Tomorrow will be a good day to put that theory to test. The UK’s inflation figures will be the subject of attention as markets look to gauge whether the BoE’s tightening cycle is feeding through to price dynamics.
It’s the eurozone’s turn today, however, with final reads for November’s headline, core and CPI due. The month-on-month headline rate is expected to be -0.5%, having registered 0.1% in October. The European Central Bank (ECB) has played its cards close to its chest up to this point, but pressure may grow should inflation figures continue to cool.
The Ifo business climate indicator for Germany fell unexpectedly to a three-month low of 86.4 in December’s survey, down from 87.2 in November. Sentiment worsened among manufacturers and in construction, while improving slightly among service providers.
In other markets, the Japanese yen gave up around 0.5% against the US dollar but remains almost 5% up this month. The yen’s strength reflects the growing belief that the Bank of Japan will soon decide to raise interest rates back into positive territory, just as the Federal Reserve starts to cut US lending rates.
The US homebuilders index rose in November, as the prospect of lower borrowing costs boosted confidence. The National Association of Home Builders/Wells Fargo Housing Market Index rose to a reading of 37, up from 34 in October, marking the first increase in four months.
The plot thickens in the PPE Medpro scandal. Former conservative peer Michelle Mone suggested the prime minister was aware of her involvement with the medical procurement firm from the outset, piling further pressure onto Rishi Sunak.
BP has halted oil and gas shipments through the Red Sea after withstanding raids from Houthi militants. The British oil major said it had paused shipping in the region indefinitely, citing a “deteriorating security situation” amid tensions in the Middle East.
Apple has been forced to suspend sales of its watch products after losing a patent case. A US judge found that its heart rate monitoring application infringed on a blood oxygen sensor owned by medical device maker Masimo, dealing the company a blow in the runup to Christmas.
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GBP: BoE looks to wage growth
Sterling fell back slightly against its major rivals yesterday as markets braced for Wednesday’s inflation numbers.
The BoE’s Ben Broadbent said that policymakers needed to see more evidence that wage growth was falling before interest rates could be cut. Wednesday’s inflation figures will be an important touchstone, but his remarks were a reminder that central bankers often look to more complex equations than headline numbers.
GBP/USD: the past year
EUR: Ifo disappointment
The euro made modest advances on both sterling and the US dollar in yesterday’s session.
Germany’s Ifo business sentiment index reported an unexpected fall in corporate confidence. The monthly survey surprised to the downside, with December’s number coming in below estimates at 86.4, a three-month low.
USD: Housing in focus
USD/GBP was boosted by around a third of a per cent yesterday, with the US dollar losing a touch of ground to the euro.
US homebuilders are becoming more confident that lower borrowing costs will boost their industry. We’ll get a bit more detail on this today with the preliminary building permits figures, but more housing activity is good news for the broader economy.
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