As we approach the final working day before Christmas, the markets have maintained relative stability throughout the week, with a prevailing narrative of steady losses for the Pound against both the EUR and USD. The key focal point for potential Pound gains this week would have been the release of the latest CPI figures on Wednesday morning.
However, the most recent UK figures came in softer than anticipated, registering at 3.9%. Forecasts had expected a decline to 4.3% this month from the last reading of 4.6%. This outcome is likely to intensify speculation that the Bank of England could consider rate cuts as early as May next year, with some forecasters eyeing a potential implementation by March. While such a move may be beneficial for the average person, it is expected to impede the Pound’s ability to gain traction. Fortunately, losses have been mitigated by a relatively quiet trading week.
Tomorrow’s retail sales figures are anticipated to provide further insight into the deflationary narrative set out by the Bank of England.
In the US this week, we witnessed considerably better-than-anticipated consumer confidence figures, coming in at 110.7, surpassing the forecast of 104.6. This figure, being a leading indicator of consumer spending, is typically viewed as inflationary data. However, the continued dovish tone from the Federal Reserve has muted its impact.
The U.S. also released its latest GDP figures, which came in marginally softer than expected at 4.9%, down from the forecasted 5.2%. This aligns with the Fed’s dovish tone and presents a slight contradiction to other data releases this week.
The week between Christmas and New Year’s Day typically commences on Wednesday in most major economic powers, with Christmas bank holidays falling on Monday and Tuesday. Economic data during the remainder of the week is sparse, with the only notable release being flash Spanish CPI figures and a few minor U.S. releases, most importantly, unemployment claims. The weekly release frequency of the latter usually limits its impact. In summary, significant volatility is not anticipated.
Wishing you a Merry Christmas
