The US dollar strengthened sharply yesterday, by as much as 1% against the pound, 1.4% against the Australian dollar and 0.75% against the euro.
The cause was America’s inflation report. It showed no change in September, staying at 3.7% annually, with core inflation (without food and fuel) also unchanged at 4.1% annually, a rise of 0.3% over the month.
Although this was more or less expected, the markets clearly believe it opens the door to the US Federal Reserve resuming interest rate rises.
In the UK yesterday, the somewhat eclipsed big story was Gross Domestic Product (GDP), confirmed at a rise of 0.2% in August. This was a sharp recovery from July’s rain-affected 0.6% fall.
However, we shouldn’t assume that the economy will continue to strengthen. On BBC news yesterday, Dr Swati Dhingra, one of the Bank of England’s interest rate-setting committee the MPC pointed out that the effects of 14 consecutive interest-rate rises have barely begun to be felt: “The economy’s already flatlined. And we think only about 20% or 25% of the impact of the interest rate hikes have been fed through to the economy.”
This morning the BoE’s chief economist Huw Pill acknowledged that the decision was finely balanced but said that it was too early to start pricing for rate cuts: “The idea that the [monetary] policy stance will turn on a sixpence seems to be overdrawn.”
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This morning the inflation data from Europe is coming in fast, although they are final results and less likely to move the dials. Of more interest to the markets might be speeches from European Central Bank president Christine Lagarde at the IMF meeting in Marrakesh, Morocco today and tomorrow.
In business news, the UK’s Competition and Markets Authority has changed its mind on the $75bn acquisition of online games creator Activision Blizzard by Microsoft, after changes to the deal.
EasyJet has enjoyed its busiest ever summer and reckons it could be on course to double annual profits to £1bn this year. On average easyJet passengers paid 11% more than last year: £105 per flight (with £75 of that on the fare and £30 for add-ons).
In the US, the strike by autoworkers that President Biden joined on the picket line earlier in the month, looks set to continue. Ford has offered to increase wages by 23% over four years, but among other demands, the union wants new starters, who normally start on barely half of the maximum $32 hourly wage, to see their ages rise faster.
Screen actors in the US also remain on strike, while screen writers have returned to work, in disputes over the use of AI in TV and movies.
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