Hot UK labour market to add complexity for BoE, Euro-area may avert recession as industry remains resilient, Israeli inflation remains at highest level since 2008
January 17, 2023
GBP/USD 1.2227 GBP/EUR 1.1292 EUR/USD 1.0829 USD/CAD 1.3407 EUR/CHF 1.0007 EUR/SEK 11.2677 EUR/NOK 10.7141 EUR/DKK 7.4394 USD/ILS 3.4184 AUD/USD 0.6964 NZD/USD 0.6414 USD/SGD 1.3222 USD/JPY 128.58 USD/CNH 6.7768 USD/INR 81.8150 EUR/ILS 3.7016 GBP/ILS 4.1797 USD/ZAR 17.0292
December’s payroll data could add to the complexity of the BoE’s next rate decision. The upside surprise for wage growth highlights that the labour market remains hot. This has seen a slight increase in rate expectations, with markets leaning towards a 0.5% hike in early February, before the BoE follows the Fed and downshifts to 0.25% hikes in March.
Andrew Bailey, BoE Governor, has said that the cost of borrowing has now normalised since Liz Truss’ fiscal policy triggered a bond market meltdown. However, he sees that international investors are still wary of lending money to the UK government.EUR
The energy crisis is hitting German factories hard, but they are adapting rapidly. The manufacturing sector has reduced it gas consumption by 30% to mitigate the impact of higher energy prices on output and manufacturing costs. We have also seen imports rise of materials that require significant amounts of energy to produce, as businesses opt to avoid manufacturing these locally.
There is a growing consensus that the euro-area may avert recession as the bloc proves to be more resilient than previously thought. The was echoed as the German economy defied expectations of shrinking output in the final quarter of 2023USD
Last weeks soft CPI release may have given the Fed room to downshift further to smaller rate hikes. PPI released this week is expected to see wholesale prices decelerate sharply in December, providing positive news for the Fed. The focus now turns to core prices, as these have failed to decelerate in recent months.ASIA/PACIFIC
China’s yuan has climbed more than 2% against the dollar so far this year, and given the macroeconomic forces at play, there is room for further upside as China emerges from the covid pandemic, and the Fed ends it tightening cycle.ILS
Sunday saw Israeli inflation remain at its highest level since 2008 despite the efforts of the Bank of Israel. Consumer prices rose 5.3% annually in December. Plans by the government may also help to tame inflation as both monetary and fiscal policy take effect.Data & Events
Germany Jan. ZEW Survey
Ireland Dec. CPI
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