Yesterday saw UK bond yields grow additionally to 5.47%, a level we haven’t seen since back in 1998 – causing further weakness to GBP – especially to the USD which reach levels that hasn’t happened since back in October 2023. Recent development with increasing bond yields is causing issues for the UK government and their budget. With already implemented tax increases, the governments other direction would have to be to cut spending. The recent performance from the UK economy with a decreasing economic growth, unemployment figures suggested to increase and inflation levels reaching higher levels, way above the target rate of 2% is causing all sorts of troubles for the government to dampen the economic escalation.
Today’s main highlights will be in the afternoon with core PPI and PPI (producer price index) released for the US. Expectations is that core PPI (excluding food and energy) will increase slightly from 0.2% to 0.3%, while PPI on the contrary is expected to fall from 0.4% to 0.3%. Recent CPI (consumer price index) did fall and could suggest that producers price levels are lower too, so I would not be surprised if these readings come in on par or below expectations.
For tomorrow, UK inflation levels will be announced. In the last three months we can see that inflation levels have grown month-on-month from 1.7% back in October to it’s most recent level of 2.6% in December. If inflation would continue to rise, this would be of major concerns for Bank of England to reshape their forward guidance and monetary actions. On top of that, if inflation would come out higher there is rumours that there is already a lot of pressure on Treasury Rachel Reeves – could this be the final nail in the coffin for her? Well, if the government would start to look for a replacement already – this would cause further uncertainty for the UK and GBP. Right now financial stability is required to lower volatility on the markets and this would have the opposite effect.
GBP/EUR 1.1864 GBP/USD 1.2171 GBP/AED 4.4753
GBP/AUD 1.9670 GBP/CHF 1.1147 GBP/CAD 1.7500
GBP/NZD 2.1700 EUR/USD 1.0250 GBP/ZAR 23.1134