UK Inflation Increases Unexpectedly
The Pound lost ground against the US Dollar and the Euro when data published by the Office for National Statistics (ONS) revealed that inflation in November stood at 3.1%, missing expectations for a 3.0% figure. This is the first time that the UK’s inflation goes above the 3.0% mark in the last five years. The Governor of the Bank of England (BoE), Mark Carney, will write an explanatory letter to Chancellor Philip Hammond, since the British central bank missed its target—keeping inflation around its 2.0% target and lower than the 3.0% handle.
A crack in the Forties pipeline, which carries crude oil from the North Sea to Scotland, led the cost of Brent crude oil to hit the highest level since 2015. The pipeline’s operator, INEOS, shut it down and stopped pumping oil in order to fix the problem which is located south of Aberdeen. In the US, investors and traders are expecting the Fed’s board meeting to begin tomorrow with an interest rate hike already priced in.
Pound Sterling – UK Markets
Today, the Pound edged lower against the US Dollar with the exchange rate set at $1.33. Sterling also lost ground against the Euro with the exchange rate set at €1.13. Data regarding inflation, producer and retail prices in November released by the ONS were in the spotlight.
According to the ONS survey, UK inflation in November rose by 3.1%, on an annualised basis. This is the highest inflation level since March 2012. The result is forcing the Governor of the BoE, Mark Carney, to write a letter to the Chancellor Philip Hammond in order to explain why the central bank missed the 2%-3% target. The ONS report, accompanying the survey, noted that air fares, recreational goods and services were the biggest contributor for the unexpected rise.
Experts said that higher oil prices recorded in the last weeks, in combination with the weak Pound made the cost of food jump. In November, bread, butter and coffee were 5.3%, 21% and 10%, respectively, which are more expensive when compared to the previous year. The ONS stated that retail prices rose by 3.9% on an annualised basis, while producer prices increased by 3.0%, again on a year-to-year basis. City analysts said that with average earnings growth lagging behind inflation, UK households should be preparing to endure the higher costs.
US Dollar – US Markets
The US Dollar edged lower against the Euro with the exchange rate set at €0.85. The US Dollar Index (DXY) lost ground coming in at 93.80. In the afternoon, the Department of Labour will publish data regarding November’s producer prices.
Joseph Stiglitz, the famous Nobel prize-winning economist, told Bloomberg that the tax reform bill is the worst he has ever seen. Stiglitz noted that the tax bill creates a lot of distortions and “has many strange provisions.” He also stressed that the US currency may strengthen if the bill passes. The Nobel prize winner mentioned that the Bitcoin is not open and transparent. Stiglitz suggested that the biggest risk for the US economy in the new year will be Donald Trump himself.
Tomorrow, a two-day Fed board meeting will begin, with investors and traders already pricing in a 0.25% benchmark interest rate hike. JPMorgan economists said that they believe the Fed will revise up the economic growth forecast, while trimming the outlook for the unemployment rate. In their report, they suggest that the possibility of four rate hikes might increase, sending the US Dollar higher.
Euro – European Markets
The Euro inched higher against the US Dollar with the exchange rate set at $1.17. The day didn’t include many significant economic data releases apart from the ZEW survey results regarding economic sentiment and business conditions in Germany and the Eurozone.
The Euro slightly strengthened after the German ZEW Economic Sentiment Index for December was released. The index which measures investors’ sentiment came in at 17.4, which was less than the figure of 18.0 that economists had expected. The previous reading had been a robust 18.7. The ZEW Current Situation reading, however, at 89.3, was better than the expected figure of 88.5.
Later today, The European Central Bank (ECB) president Mario Draghi is scheduled to speak briefly in Frankfurt at the conclusion of the Cultural Days. He is giving a statement because the event is organised by the ECB, but it is highly unlikely that he will make any mention of ECB monetary policies.
Other Currencies – Highlights
Sterling edged lower against the Australian Dollar, trading at 1.76 AUD. NAB’s business survey showed that business conditions declined in November, reversing October’s spike. Businessmen said that they are concerned about the demand outlook, margin pressure and wage costs. Business confidence in the mining industry improved, reaching the highest level since 2010.
The Pound fell against the New Zealand Dollar, trading at 1.92 NZD. Prime Minister Jacinda Ardern told reporters that she is satisfied in the way the government performed its duties in the first fifty days. She said that, by cancelling National’s tax cuts, the government will be able to fund its fiscal plans. Ardern noted that she will ensure that the gains of economic growth are fairly shared.
Sterling dropped against the Singaporean Dollar, trading at 1.80 SGD. Retail sales in Singapore increased by 1.5%, on a monthly basis, during October.