Those years of high interest rates seem finally to be having an effect, as inflation has just been revealed to have come crashing down to 3.2% annually, much lower than expected and with many prices falling last month. Food and non-alcoholic drinks dropped most, following raw materials, but recreation and culture saw continued price increases.
It means that an interest rate cut from the Bank of England (BoE) is now assured tomorrow and sterling exchange rates have fallen in response. It’s all a very different story from yesterday, when sterling gained on news that, despite unemployment hitting another post-pandemic high, wage rises are still way ahead of inflation at 4.7%.
Yesterday’s Purchasing Managers Index (PMI) was also upbeat, with British businesspeople in both the service and manufacturing industries all more positive than predicted.
So where does that leave exchange rates in the final full week before Christmas? GBP/EUR and GBP/USD have both dropped a quarter of a cent this morning, but only reversing yesterday’s gains.
The USA has been playing catch-up with its own data as it released two sets of Non-Farm Payrolls data yesterday. It was all a bit of a mixed picture but tending to the negative and further undercut by a sharp rise in unemployment to 4.6% the dollar dipped in response.
We’ll get America’s inflation numbers tomorrow, and a drop similar to the UK’s could hit dollar exchange rates.
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