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GBP lower on suggestion of earlier rate cuts

Good morning


US retail sales come out better than expected yesterday, USD did gain on the release with GBPUSD trading down to 1.2405 and EURUSD down to 1.0830, while USDJPY pushed up to 151.20. GBP continued to lose ground against USD overnight, hitting a low of 1.2380, pretty much where we are as I type. In contrast, EURUSD has held its ground and sits now at 1.0845, of course this means GBP has dipped against EUR, GBPEUR now 1.1415, the lowest level since May 2023. USDJPY is higher at 151.40.


GBP weakness is perhaps helped by an article in the Times that suggests we could see rate cuts in the UK as early as spring, much earlier than had been previously expected, given the dip in inflation. This is perhaps a little premature given we are still well above target but would be welcomed by many people for sure. I’d mentioned yesterday the potential for USD to not weaken if they started cutting rates as it is all relative to other currencies. This is a good example of that.


Aussie unemployment numbers overnight were pretty good AUD initially pushed higher with GBPAUD trading down to 1.9060 but that move soon reversed and the pair climbed to 1.9175 over the next couple of hours. Since then it has slipped slowly back to 1.9100. AUDUSD had similar fortunes, hitting 0.6515 after the data but now sots around 0.6475. The AUD weakness seems to have come more from a general softer tone in risk sentiment, plus some more weak housing data out of China overnight.


Biden met China President Xi yesterday, I could probably have written the result of the meeting which seemed to go something along the lines of ‘China is not a threat to US, China doesn’t want to challenge US, plenty of room for cooperation, US should not interfere with China internal affairs.’ The latter comment refers to Taiwan,, Xi made it clear peaceful reunification was their aim, although wouldn’t rule out force if need be. Some of the good work may have been undone when it was reported Biden had called Xi a dictator at an ‘off-camera’ moment after his press conference.


UK’s Rwanda deal for asylum seekers has been dealt a blow as the Supreme Court ruled the plan unlawful. I always presumed we wouldn’t really be shipping people to Rwanda, rather than it would act more as a deterrent to those who think we have become an easy place to obtain free benefits as well as freedom. The risk that people sent to Rwanda could be shipped back to their home country seemed to be the key reason for the plan being turned down. Talking of being sent overseas, I see David Cameron has been sent off the Ukraine for his first official visit. Cameron promised ongoing moral, economic and military support.


I went to see Passenger last night at Union Chapel in Islington. I have to say it was a pretty incredible event. Firstly, the venue was stunning, small enough to have that intimate feel with just a few hundred people in the audience. The music was as good, if not better, than I’d have hoped. It was capped off superbly when he dragged none other than Ed Sheeran on stage to duet ‘Let Her Go’. Wife was suitably impressed.


Meetings in London today mean I’ve got to wrap this up quick. Have a good day, not a major day in terms of economic data today, although we will have UK retail sales early tomorrow morning. Havre a great day, do look up ‘Let Her Go’ on YouTube for the Passenger/Sheeran version, and take a look at some pictures of Union Chapel which I’m sure won’t do the place justice but might give you an idea of what I’m talking about.


- 13.30 US philly fed survey, initial jobless claims

- 14.15 US industrial production

- 16.45 BoEs Ramsden speaks

- 22.45 NZ PPI

- 07.00 UK retail sales



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