The USD edged slightly higher against GBP overnight as The Fed Reserve’s meeting minutes seemed to point towards a continuation of their hawkish stance. The minutes indicated that the central bank should eventually slow the pace of aggressive rate hikes, however The Federal Reserve are still intent on having high interest rates until further evidence shows inflation dropping naturally. The problem the Fed Reserve has is they are keen to bring inflation under control whilst also ensuring they avoid a major recession in 2023 which would lead to steep job losses. Markets are currently pricing in a 25 basis point hike in their next meeting in February.
On the job front, that brings us nicely onto the Non-Farm Payrolls release on Friday. Expectations suggest The U.S will have created 200,000 jobs which is lower than November, however with initial jobless claims and continuing claims looking likely to improve from November, it wouldn’t be a surprise to see an improvement on Non-Farm Payrolls in December.
Friday also see’s the release of Europe’s inflation figures for December which is expected to be in and around the 5% mark. As long as inflation doesn’t come in below this figure, it will further increase The European Central Bank’s stance of raising interest rates by 75 basis points in January & February. This will no doubt have an impact on the rates, most notably against The USD & Sterling.
Away from The Federal Reserve and European Central Bank, all eyes are focussed on the COVID developments in China and whether they can avoid going back into lockdowns and restrictions. Hope at present suggests no further lockdowns are needed, and should bring optimism for improvements in Global Supply Chains for the latter part of 2023.