December 14, 2022

Daily Report 14/12/2022

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The slightly stronger labour-market data failed to have a major impact on Tuesday, but Sterling held a firm overall tone as expectations surrounding peak Bank of England interest rates edged higher given a stronger increase in wages. The UK currency held a firm tone despite a warning from the Financial Stability Report that conditions were deteriorating and that stresses on household and business budgets would increase further. Sterling jumped higher after the US inflation data with a peak at 6-month highs. Sterling was underpinned by a weaker dollar as well as a stronger tone surrounding risk appetite amid hopes for that central banks could be less aggressive. The headline UK CPI inflation rate declined to 10.7% for November from 11.1% previously and slightly below expectations of 10.9% while core inflation retreated to 6.3% from 6.5%.

Key Data

7.00 Consumer Price Index (YoY) (Nov) Act. 10.7% Exp. 10.9% Prev. 11.1%

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The German ZEW economic sentiment index improved to -23.3 for December from -36.7 previously and above forecasts of -26.4. The current conditions index also improved slightly to -64.5 to -61.4, although this fell short of market expectations of -57.0. The Euro held a firm tone, although with narrow ranges ahead of the US data.

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US consumer prices increased 0.1% for November after a 0.4% increase the previous month and below consensus forecasts of 0.3%. The year-on-year rate declined to 7.1% from 7.7% and also below expectations of 7.3%. Food prices increased 10.6% over the year with a 13.1% increase in energy prices despite a monthly decline. Underlying prices increased 0 2%, slightly below forecasts of 0.3% with the year-on-year rate declining to 6.0% from 6.3% and slightly below forecasts of 6.1%. There was a sharp decline in the price of used vehicles for the second month in a row with a dip in the cost of medical services while there was a slight moderation in the increase in shelter costs which provided some relief over rent trends. The Federal Reserve will announce its latest policy decision on Wednesday. There are very strong expectations that the pace of rate hikes will be slowed to 50 basis points which would take rates to 4.5%. Rhetoric and guidance from Chair Powell will be crucial for the market reaction. There is increased market speculation over a more dovish stance and the potential for rates to peak below 5.00% with a sharp reaction if Powell remains very hawkish.

Key Data 

19.00 Fed Interest rate Decision Exp. 4.% Curr. 4%
19.00 Fed Monetary Policy Statement
19.30 FOMC Press Conference