The US dollar resumed its decline against the British pound and the euro as investors and traders focused on the release of US inflation data due out on Thursday, January 12th. The US Dollar Index (DXY) remains under pressure towards the round figure of 103.00, just above its lowest level recorded in the past seven months.
As market participants await US CPI data to adjust their strategies, some economists note that the US dollar’s weakness could also be attributed to Federal Reserve (Fed) Chairman Jerome Powell’s failure to give clear guidance on next US central bank actions, thus amplifying uncertainty and weighing on the US currency.
MUFG Bank analysts suggest that the US dollar could suffer further losses in the absence of strong US inflation data. In their report released yesterday, they note that “unless market expectations are challenged by stronger incoming data, this leaves the US dollar vulnerable to further near-term weakness.”
Inflation rate in China (CPI)
On Thursday, China’s National Bureau of Statistics is to release December consumer price index data. The Chinese administration is trying to boost economic growth amid the new headwinds of the COVID-19 outbreak. Inflation data is expected to impact the People’s Bank of China’s (PBOC) monetary policy tightening plan.
Indeed, China is the manufacturing center of the world. If manufacturing costs rise for Chinese companies, they will likely eventually trickle down the supply chain to the rest of the world.
The PBoC board has vowed to help households and private businesses with increased financial support to help them recover.
Earlier this week, the Chinese government announced it would ease regulatory oversight of the country’s biggest tech companies. Chinese tech stocks rallied on Wednesday morning as investors believed operating conditions for tech companies would improve in the coming months.
Gross Domestic Product (GDP) of the United Kingdom
The UK economy has grabbed financial headlines many times in recent months, but mostly for negative reasons. High inflation rates over the past 12 months have added to the list of problems facing the UK government with economic reform in one of the strongest economies in the world.
On Friday 13 January, the UK’s Office for National Statistics (ONS) will release data on the country’s gross domestic product (GDP) for the month of November. Economists suggest the ONS report will show a 0.2% month-on-month decline. It should be noted that UK GDP grew by 0.5% MoM in October.
This week, a report from Goldman Sachs revealed that its economists expect a 0.7% decline in UK GDP in 2023, predicting “a significantly more pronounced slowdown in the UK than in the eurozone”.
GBP currency pairs could be impacted if UK GDP contracts more than expected. A better-than-expected GDP figure could strengthen the pound, while a stronger-than-expected contraction could send the pound down.
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