January 20, 2023

Daily Report 19/01/2023

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Sterling continued to edge higher following the latest UK inflation data. Although the headline data was in line with expectations, markets tended to focus on the increase in services-sector inflation with expectations that sticky inflation would lead to the Bank of England maintaining a more hawkish policy stance to curb inflation. There was further optimism that the global economy would rebound which helped underpin risk conditions and also underpinned demand for the UK currency. With the dollar losing ground again, there were strong Sterling gains to fresh 1-month highs against the US currency and very close to 7-month highs.

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The Euro continued to post gains in early Europe on Wednesday with highs against the dollar before a correction. There was further choppy trading due in part to high volatility in the yen after the Bank of Japan policy decision while Euro confidence remained firm. Risk appetite remained more fragile on Thursday amid recession concerns and the Euro traded marginally lower in early Europe

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10.30 Christine Lagarde Speech

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US retail sales declined 1.1% for December compared with expectations of a 0.8% decline and the November decline was also revised to 1.0% from the 0.6% reported originally. There was a sharp decline in gasoline sales for the month. Underlying sales declined 1.1% compared with expectations of a 0.4% decline and followed a 0.6% decline the previous month. There was also a 0.7% decline in the control group after a 0.2% fall for November. The weaker than expected data triggered fresh concerns over the outlook for both consumer spending and the economy with fresh recession talk. The Fed’s Beige Book indicated that districts expect little growth in the months ahead while inflation pressures overall had eased and are expected to moderate further.

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