GBP sell-off continued following on from Wednesday's inflation numbers as dovish repricing on rate expectations next year continues to be the narrative. USD sell-off continued yesterday on a similar narrative following third quarter GDP numbers and core PCE inflation numbers coming in lower suggesting growth was not as much as previously expected as well as suggesting inflation cooled more than expected.
Data this morning revealed that the UK economy shrank by 0.1% in the third quarter of this year, which is a downgrade from the previous estimate of 0% growth. The data adds to the mounting speculation that the UK is perhaps already in a recession. The Office of National Statistics also lowered their growth estimates for the second quarter of next year to 0% growth from 0.2%. In positive news, however, it appears that consumers were exuberant in their spending in November with retail sales coming in higher than initially forecasted. The uplift in sales has been attributed to consumers taking advantage of the Black Friday promotions. Mixed news, meaning that GBP’s net move is neutral.
* Daily move - against G10 rates at 7:30am, 22.12.23
** Indicative rates - interbank rates at 7:30am, 22.12.23
The last big data piece of the year today with the core PCE inflation number for November. Markets are expecting inflation to continue to cool down to 3.3% which should back the recent repricing of rate cuts seen in the markets. But like yesterday unless we see a higher number come in then we would expect USD to continue to weaken. The USD index is currently sitting on a key support level marked by the lows seen in August. A breach below this level could see USD weaken by another 1% taking us to February and April support levels which could well see GBPUSD reach the highs seen this month and EURUSD hit the July highs.
And that’s it for the daily market report for this year. Thank you to all our readers for your continued support and we wish you all a merry Christmas and a prosperous new year. The report will be back from the 2nd January 2024.
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