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Currency Market Update - 16th November 2023

Currency Market Update

Yesterday morning saw UK Inflation drop comfortably below 5% for the first time in 2 years. The lower energy price cap imposed on households at the start of October was a main contributor towards this figure. Food Bill prices also eased last month, dropping to their lowest levels since June last year at 10.1%.

Focus will now turn towards wage growth, with the hope that wage increases slow towards the inflation number with fears a spike in demand could lead to price growth again. A direct impact of this will be The Bank of England’s direction for Interest Rates in the near future.

The USD weakened earlier this week off the back of their inflation release, with it looking likely The Federal Reserve may well start indicating Rate Cuts for 2024, and it looks like The Bank of England will follow suit. Financial markets show traders believe there is a good chance The Bank of England could start cutting Interest Rates as early as May 2024.

Keeping with The US, Retail Sales fell last month for the first time in Seven months. Suggesting that Americans are now feeling the pinch with their Interest Rates currently at a 22 year high. The main concern from this is that it shows signs of a potential slowing economy with US Consumers choosing to rack up Credit Card debt instead. The drop off in Retail Sales came notably from a drop in Car sales by just over 1%, whilst Furniture sales also slowed by 2%. Although initial signs would suggest this is negative, it backs up The Federal Reserve’s 11 interest rate hikes since March of last year.

Throughout today we have a basket of speeches from US officials which will be worth keeping an eye on, but more importantly we round the week off tomorrow with the Inflation release for The Euro-Zone. Their inflation is also set to follow suit with figures pointing towards their inflation dropping below 3%. What will be key is the reaction to The Euro on the markets, as up until now Christine Lagarde has fronted a hardline to continue raising interest rates, but with inflation set to drop naturally as we’ve seen in The UK & US, it may become more difficult for The European Central Bank to continue on that path. Any mention of a pause in the hiking cycle, or a potential path towards cutting their rates will no doubt lead to Euro weakness.



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