Podcast: US & UK Inflation

Created: 20th November 2023

Shortened week in the US in celebration of Thanksgiving. All US markets closed on Thuraday resulting in reduced liquidity in European markets.

So, what do we know?

(A forex, index, and commodity market review)

The Bank of England had previously warned of the risk that the UK economy could stagnate. The surprise news that inflation fell more than expected to 4.6%, a two-year low, will encourage investors to believe that the next rate move could be down, which would be welcome news to consumers. In the US, inflation also fell more than expected, to 3.2% versus 3.3% expected, whilst core inflation at 4.0% better than the 4.1% expected. As a result, US and global equities responded by building on the sharp gains from the previous week.


Weekly change (amount change and percentage change on the week)


FTSE +105 +1.42%

DAX +618 +4.03%

DOW +689 +2.01%

S&P +99 +2.24%

NASDQ +219 +1.87%

NIKKEI +660 +2.00%

Hang Seng +366 +2.19%


Equity markets responded across the board to signs that the major central banks were close to or had concluded their interest rate tightening cycles. Following the release of the better-than-expected inflation data, which caught some by surprise, the probability that rates have peaked now looks almost certain. The CME Fed Watch tool has rates remaining on hold in the next two FOMC meetings as an absolute certainty. The probability of a rate cut jumped with a 50/50 call that rates are cut in May next year.

Other economic data was positive with better-than-expected manufacturing and retail sales data propelling major US indices sharply higher last Wednesday.

UK and Eurozone investors also started to increase their bets that rates would soon be cut in the UK and Europe, following weak economic data. The UK recorded its worst retail sales data for two years on Friday whilst last Wednesday the Eurozone released worse than expected industrial production data that also implies stagnation in the Eurozone. Both the UK and Eurozone swap rates also imply rates will be in cut in June or perhaps as early as May.


EURUSD +2.10 +1.96%

GBPUSD +2.27 +1.85%

USDJPY -1.98 -1.30%


The US Dollar fell sharply last week in response to the better-than-expected US inflation released last Tuesday. Forex rates are largely determined by interest rates differentials and with the increase in expectations that rates will be cut as early as May next year, the US Dollar fell sharply in reaction. What is not clear is why the Euro and Sterling did not give up some ground following the release of the Eurozone Industrial production and the UK inflation data, which resulted in forward swap rates implying a rate cut as early as May in both the eurozone and the UK. The EUR/USD rate hit its highest level since the end of August, a level that will surprise some analysts who were predicting a fall top parity versus the US Dollar in the coming months.


Gold +42 +2.17%

UK OIL -1.04 -1.27%

US OIL -1.62 -2.09%


Gold continues to react to weakness in the US Dollar rather that a fall in inflation in developed economies. Clearly Gold is no longer a hedge against inflation.

Oil slumped last Thursday , hitting a four year low as the Israel / Hamas war remained just in the Gaza Strip as the oil price now looks to have fully discounted the conflict spreading outside Gaza. However, reports that OPEC members were discussing extending productions cuts into next year reversed the fall on Friday, as speculation mounts that Saudi Arabia could extend its 1mn bpd cut until at least Q2 2024.


What don’t we know….yet?

(What traders need to look out for in the week ahead)

With the focus on inflation last week and the impact these data releases will have on central bank thinking, this week’s release of the FOMC minutes will attract attention.

In the Eurozone we have Manufacturing PMI data as traders will want to see any signs of improvement in the economy, with manufacturing mired well below the key 50 level, separating contraction from expansion.



Chian 1 and 5-year loan rate. Left unchanged as China remains in a cleft stick – would like to cut rates but this would make the property situation even worse.



UK PSNB – Public Sector Net Borrowing. Not something we would normally comment on but the focus this in UK markets is on the Autumn Statement, delivered by the Chancellor. Depending on the borrowing numbers and hence the “wriggle room”, Jeremy Hunt is strongly rumoured to be cutting taxes to bolster both the country’s prospects and the Conservative party. GBP sensitive.

US FOMC minutes. The Federal Reserve publishes its minutes from the previous meeting held on November 1st. With the focus on interest outlook, which was the main risk-on driver last week, the minutes will attract traders’ attention to understand more behind the Fed’s thinking. USD and US assets sensitive to this release.

Eurozone Chair of ECB, Christin Lagarde, speaking at an event hosted by the German Ministry of Finance, in Berlin. Any clues on monetary policy thought welcome.



UK Autumn Statement from the Chancellor. Tax cuts? GBP and GBP assets sensitive.

US Revised University of Michigan Consumer sentiment. Happier.



EU and UK Flash Manufacturing and Services PMI – Only a very modest pick up in activity expected with all readings below 50. This data will add to the argument brewing that the BoE and the ECB should be considering rates cuts in Q2 next year. Premature some central bankers say.

US Thanksgiving Holiday. All markets closed.



Germany IFO Business Climate survey of manufacturers, builders, wholesalers, services, and retailers; A pick up from last month but needs a consistent improvement.

US Flash Manufacturing and Services PMI – delayed by a day due to Thanksgiving Federal holiday.

US Black Friday. Retail sales data for Black Friday and Cyber Monday will be closely analysed next week for any weaknesses in the consumer’s appetite to spend.