December 21, 2022

Daily Report 21/12/2022

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Overall confidence in the UK economy remained very fragile during Tuesday and there were further expectations that the Bank of England would adopt a dovish stance, especially in comparison with other major central banks, although global developments tended to dominate during the day. Risk appetite remained fragile during the day which limited Sterling support and there were net losses into the New York open. Trading levels will weaken ahead of the holiday period which will increase the risk of choppy trading over the next few days. The latest Lloyds Bank survey recorded an increase in UK business confidence across the economy while wage increases remained high which will maintain concerns within the Bank of England over the threat of sustained inflation pressures. Overall risk conditions will remain very important for Sterling moves. The latest data recorded a surge in government borrowing for November with higher spending and a sharp increase in debt interest payments, reinforcing unease over underlying trends.

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The Euro again hit selling interest although overall existing ranges held intact. Euro-Zone consumer confidence edged higher to -22.2 for December from -23.9, but marginally below expectations. Position adjustment will maintain the threat of erratic currency moves over the next few days, although conditions were calmer on Wednesday with the Euro trading within tight ranges amid slightly calmer conditions surrounding risk appetite and expectations of a hawkish ECB policy stance.

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The December US Philly Fed non-manufacturing index declined to -17.1 for December from -13.6 the previous month with a slight decline in revenue and further decline in new orders. There was a slower growth in employment for the month while inflation pressures eased on the month. Companies were, however, more optimistic over the six-month outlook, especially for their own companies. US housing starts were unchanged at an annual rate of 1.43mn for November and marginally above consensus forecasts, but there was a sharp decline in housing permits to 1.34mn from 1.51mn. This was well below expectations of 1.49mn and the weakest reading July 2020. The data maintained reservations surrounding the housing sector and wider US economic outlook, limiting potential dollar support.

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