Last week was quiet on the data front, reflected in the rates, as GBP traded within a tight range. GBP/USD touched 1.2344, the best level since mid-June, then sold off, hitting a low of 1.2105. GBP/EUR traded between 1.1565 and 1.1678, showing a decline in the level of volatility we’ve become accustomed to since the Liz Truss era.

This week has been the opposite, with a large number of data releases from the UK, the US, and the EU.

Yesterday morning, the UK released its employment data. UK unemployment met estimates at 3.7% while the number of people in employment grew by 107k to a total of 29.9 million in work.

Wage growth figures were also strong, as pay increased by 6.1% y/y, the best increase on record outside of the pandemic. But, with inflation accounted for, pay declined by 2.7% in the period.

The US inflation number was also released yesterday, coming in under expectation at 7.1%; further evidence which shows the US has likely seen prices peak after the Federal Reserve’s decisive action over the last year. This data should allow the Fed to take a less aggressive path on interest rates in the future.

The consensus is the US will raise rates by 0.5% today, rather than the 0.75% hikes they’ve relied on in previous meetings. The USD sold off after the inflation data dropped, and Cable is currently trading at 1.2440 and EUR/USD just over 1.0660.

Today, the UK CPI figure surprised at 10.7% against an expected rate of 10.9% reducing pressure on the Bank of England to keep hiking rates to bring inflation under control (their number one priority).

The Federal Reserve will make its Interest Rate decision today also, with an expected 0.5% increase. The main focus, however, will be on the press conference where traders will look for clues on the future path the Central Bank will take.

On Thursday, both the EU and UK will make their Interest Rate decisions. Both Central Banks are expected to hike by 0.5%. There is a chance the Bank of England may go for a larger increase given the high inflation here. In a recent poll 13 of 56 surveyed were voting for another hike of 75bps.

Calendar

Wednesday 14th December

UK CPI y/y
US FOMC Rate Decision
US FOMC Press Conference

Thursday 15th December

UK Official Bank Rate
EUR Main Refinancing Rate
ECB Press Conference
US Retails Sales m/m

Friday 16th December

EUR Services PMI
EUR Manufacturing PMI
EUR Final CPI y/y
UK Services PMI
UK Manufacturing PMI
US Services PMI
US Manufacturing PMI