Sterling fought back against the euro yesterday, gaining nearly three-quarters of a percent even as it struggled against the US, Canadian and Australian dollars.
Indeed, the single currency was the overall loser yesterday, as inflation continued to fall below expectations in key economies, yesterday Italy.
However, ECB president Christine Lagarde warned in a speech in New York that the rivalry between China and the USA was likely to be inflationary. She said that since both Europe and the USA are dependent on China for rare earths and other critical materials, global supply chains could easily be disrupted. She also suggested that some countries were reducing their dependence on the dollar and euro and trading in the renminbi and Indian rupee. “International currency status should no longer be taken for granted,” she said.
There was little else for the markets to chew on yesterday, but that changes for the rest of the week, with inflation at 7am tomorrow morning, then Gfk consumer confidence on Thursday and retail sales on Friday.
This morning we have heard that UK unemployment reached 3.8% in the quarter to February, a rise from 3.7% and adding around 28,000 new claimants. The rise in wages by 6.6% (against an expectation of 6.2%) will be giving the Bank of England’s Monetary Policy Committee (MPC) pause for thought. Are those ‘secondary effects’ and a wage price spiral coming into play?
The MPC looks set to take a more hawkish turn this summer with Megan Greene replacing the notably dovish Silvana Tenreyo for the July meeting and the next three years. The US-based economist and contributing editor to the FT has been supportive of the Fed continuing to raise interest rates aggressively.
Also in the business news, China’s GDP was revealed to be rising by 4.5%.
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