EUR Supported by Subsiding US Inflation, China Data in Focus

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Subsiding inflation in the US supported the EUR after the markets priced in a weaker USD on the back of expectations that the Fed will ease up on interest rate hikes in the near term. Meanwhile, UK inflation showed signs of flagging in November following the latest result of 10.7 percent, a fall from 11.1 percent in October.

In other global developments, we’re watching China’s Industrial Production report for November, due on Thursday. Market consensus anticipates a year-on-year rise of 3.6 percent compared to the previous level of 5 percent. China started to exit its zero tolerance COVID-19 policy in early December, so the effects are likely to show over the next few industrial production reports. How fast will China pick up the pace of industrial production? The answer could mean the difference between global growth and a global slowdown next quarter.

The Asian Development Bank (ADB) is less optimistic about growth in Asia and recently lowered its economic growth forecast for the region from 4.3 percent to 4.2 percent in 2022. The ADB’s growth expectations for 2023 were revised down from 4.9 percent to 4.6 percent. The reasons behind the dimmer outlook are global monetary tightening, the war in Ukraine and ongoing COVID-19 pressures in China.

These three serious circumstances in the world economy appear likely to persist into the next quarter, weighing on growth in China and the wider region.

Of these factors, at least one – China’s COVID restrictions – is on its way out and it can be argued that global monetary tightening will gradually ease in line with the encouraging signs that inflation is declining. As to the impact of the war in Ukraine on energy prices, crude oil costs are also heading downwards at the time of writing, largely on expectations of a global slowdown. On the bright side, growth in Asia is supported by a boom in the airline and hospitality sectors amid a post-COVID pick up in business and leisure travel.

On Thursday, there will be an update on Retail Sales in the world’s largest economy, the US. Pressured by high prices, retail sales are seen falling by minus 0.1 percent in November compared with 1.3 percent in October. When seen on a yearly basis, retail sales for November 2022 are expected to fall to 7.9 percent versus 8.3 percent for the same period in 2021.

Retail sales figures for the UK are due out on Friday and are expected to have dropped from 0.6 percent in October to 0.3 percent in November. The annual comparison appears cloudier than the monthly one; retail sales for November are seen at minus 5.6 percent compared with minus 6.1 percent in the same period last year.

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

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