Sterling was resilient in early Europe on Friday despite the generally weaker than expected data and a significant miss for the GDP release. The UK consumer inflation expectations survey recorded an increase in the 1-year expectations rate to 3.2% from 2.7% in August while the longer-term expectations index edged higher to 3.1% from 3.0%. There was a further downgrading of expectations surrounding a Bank of England rate increase at this week’s policy meeting with money markets pricing out the potential for a rate increase given uncertainty triggered by the Omicron variant. A UK government spokesman stated that some progress had been made on the Northern Ireland protocol, although the market was focussed elsewhere. CFTC data recorded no significant change in the latest week with funds continuing to hold a substantial short Sterling position. The UK currency dipped sharply at the Asian open following Prime Minister Johnson’s declaration of an Omicron emergency. The move to intensify booster vaccinations helped curb potential selling pressure to some extent with hopes that damage would be contained, but Sterling drifted lower in early Europe.
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The Euro drifted lower ahead of Friday’s New York open with a retreat against the dollar. Overall, the Euro recovered slightly throughout the day. CFTC data recorded a net decline in short Euro positions to just below 10,000 contracts. The Euro edged lower again early this morning with the Federal Reserve still expected to adopt a hawkish tone this week, although relatively narrow ranges prevailed given the increased element of uncertainty.
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US consumer prices increased 0.8% for November after a 0.9% increase the previous month and marginally above consensus forecasts of 0.7%. The year-on-year rate increased to a fresh 29-year high of 6.8% from 6.2% and met expectations. Food prices increased 6.1% over the year while gasoline prices increased over 58%. Core prices increased 0.5% which met expectations and the year-on-year also met market expectations with an increase to 4.9% from 4.6%. Used car and truck prices increased 31.4% over the year while the increase in shelter prices was held to 3.8%. Although the data was broadly in line with expectations, there had been some concerns that the headline data would push above the 7.0% level. In this context, there was a slight element of relief and position adjustment with the dollar losing some ground into the New York close.
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