Market Report - 18/01/2024
UK CPI surprises ; US Dollar rallies following labour market data
Yesterday saw UK CPI data released, with a print of 4% YoY overshooting the markets expectation of 3.8% YoY - proving that inflation has remained stubborn in the UK, and possibly pushes back expectations for rate cut from the Bank of England in the first half of this year.
In the immediate aftermath of this data, the GBP rallied in the midweek trading session, offering excellent value to those looking to transact from pounds into euros – which saw the rate move to yearly highs around 1.1680.
As mentioned above, 2024 has seen a retreat in Bank of England rate cut bets following some below expectation labour market data, and an unexpected increase in inflation. This is owing to a view that UK inflation could prove 'stickier' than was thought at the end of 2023, a view confirmed by Wednesdays CPI release.
In what has been a relatively stable start to the year for the GBP/EUR rate, the inflation reading did add some volatility to the pair, taking it to a 2024 high of just under 1.1680. This uptick has stayed prevalent into Thursday as GBP/EUR continues to trade around 1.1660, with further gains possible if Friday mornings UK Retail Sales data comes out above expectations.
Moving across the pond, today saw the release of US employment and labour market data. US citizens that applied for unemployment insurance benefits increased by 187K in the week ending January 13th, the lowest reading since late September 2022 – which was proved by the US Department of Labor (DoL) on Thursday. The reading came in below market estimates and follows a 203K gain in the previous week. Additionally, Continuing Claims dropped by 26K to 1.806M in the week ended January 6.
Following this, the ever present USD strength was renewed, seeing GBP/USD move lower from daily highs of 1.2704 to 1.2646. Market participants will now keep an eye on a speech this afternoon from Atlanta Federal Reserve President Bostic, along with Consumer Sentiment Survey data and the release of US Existing Home Sales tomorrow afternoon.
Lastly, EUR/USD has remained under pressure and comes all the way down to revisit levels just south of 1.0850, which is actually a yearly low for the pair - on the back of the aforementioned renewed dollar strength.