12th December - Weekly FX Update

Top Currency Pairs Monday 12th December 04:00 UTC GBP/USD: 1.22283 (Last Week: 1.23413) EUR/USD: 1.05137 (Last Week: 1.05818) GBP/EUR: 1.16309 (Last Week: 1.16627)

Market News

Pound Sterling Early official figures from the Office for National Statistics show that the UK economy actually grew by 0.5% in October as opposed to the -0.6% contraction reported in September. Whilst this news is better than experts had forecasted, it is still expected that the UK is headed for a recession, with the Bank of England on course to increase rates by 50 basis points in Thursday's end of year meeting. On Wednesday we see the release of CPI data taken from November which might show that inflation has finally peaked, having reached a 41 year high of 11.1% in October. It has indeed been a tough year economically in the UK with the fallout of the Russia Ukraine war causing energy and food prices to surge, adversely affecting the living standards of families across Britain. With this in mind and the fact the UK is still adjusting after Brexit and the Covid-19 pandemic, inflation may take some time to fall.

Euro The ECB meet on Thursday for the final time this year and it is widely expected that a rise of 50-basis points will be announced. This is off the back of the 200 basis points already risen since July, a record pace for rate rises by the ECB. The current predicted rate rise comes as annual inflation actually slowed for the first time in 18 months in October down to 10% from 10.6%, however this is still well above the 2% target originally set out by the ECB.

U.S. Dollar Wednesday sees the Federal Reserve wrap up 2022 with Jerome Powell holding the last news conference of the year. In a year which has seen the US wrestle with soaring inflation, the Federal Reserve has not been shy in raising basis points with aggressive hikes throughout the year. In total we have seen rates rise by 375 basis points, a record not seen since the 1980's. Another 75 basis point hike is unlikely to be announced this time with the general consensus being that the Federal Reserve will instead opt for a hike of 50 basis points and slow down the rate of increases going into 2023 with interest rates already higher than previously predicted in September.

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