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Currency Market Update - 17th January 2024

Currency Market Update Pound Sterling has risen across the board this morning after UK inflation figures for December increased more than initial expectations. This has now led to markets lowering their expectations for immediate Bank of England interest rate cuts, which of course bodes well for The Pound if as suggested The Federal Reserve and European Central Bank strike first with their respective cuts. Official figures show that inflation rose to 4%, a surprise increase of 0.2% from initial forecasts.

There are a few contributing factors towards this unexpected growth, one being an increase in Tobacco as The UK Government upped duties on these products in the most recent autumn statement. Tobacco prices overall saw an increase of 16% throughout December. Core Inflation, which measures price rises within Food & Energy stayed at 5.1%, bringing a bit of relief. However we can expect to see the full effects of shipping costs hitting inflation in the coming weeks due to Red Sea diversions as a result of the current conflict with the vessel attacks. This will more than likely be reflected within January’s inflation reading.

Sticking with inflation, the Euro-Zone have their December reading released at the top of the hour with a suggestion that they will see a drop from 3.6% to 3.4%. A release of data which matches expectations could potentially see markets start to factor in a rate cut by The European Central Bank, which would lead to Euro weakness. Although as we’ve seen with The UK this morning, inflation surprised markets and reacted in the complete opposite way, so it’ll be worth keeping an eye on.

We finish the day off with U.S Retail Sales in December, forecasts suggest a slight increase of 0.1%. However factoring in the festive season in December, it certainly wouldn’t be a surprise if we were to see a higher than expected figure. I wouldn’t expect this release to impact The Federal Reserve’s Interest Rate dilemma, but nonetheless it’ll be a key influence to the US Dollars performance.

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