Daily Forex Fundamental Overview

Dukascopy Bank Team Dukascopy Bank SA

Fundamental Analysis

GBP

“Higher inflation means the pound in your pocket won’t stretch as far and many will be thinking how they can make their money work harder”.

- Tom Stevenson, Fidelity International

According to the Office for National Statistics, the UK’s cost of living went up to 1.2% in November, showing the highest level in more than two years. Analysts had expected the rate to climb to 1.1%. The ONS said the biggest factor pushing inflation up last month was a rise in clothing prices, which increased by 1.6% between October and November this year, compared with a fall of 0.1% between the same two months a year ago. Moreover, motor fuels and a 'variety of recreational and cultural goods and services', including hotel and restaurant charges, were also the main contributors to November's increased rate as well as the fall in the value of the pound since the Brexit vote also is fueling a rise in the cost of living. Overall, a basket of goods and services that cost £100 in November 2015 would have cost £101.20 last month.

In the meantime, the Bank of England expects prices to keep rising in the coming months, as last year's harsh decline in the oil price falls out of the headline rate and the impact of the decline in the pound continues to feed through to consumer costs. As the result the value of the pound against the dollar and euro in early trading advanced.

EUR

“On balance, this survey and others suggest that the German economy is faring well for now. But we doubt that recent strong rates of growth, which have owed much to the effects of falling inflation on consumer spending, will be sustained”.

- Jennifer McKeown, Capital Economics

The Euro zone’s employment growth slowed in the September quarter, official figures revealed on Tuesday. According to flash figures published by Eurostat, the number of employed persons climbed 0.2% in the Q3, down from the preceding quarter’s gain of 0.4%, whereas economists expected an increase of 0.3%. However, there were 153.4 million employed in the region, the highest level since the Q4 of 2008. On a yearly basis, employment growth increased 1.2% in three months to September, following the prior quarter’s 1.3% rise.

Other data released on the same day showed German economic sentiment remained unchanged in December amid the looming banking crisis in Italy and upcoming elections in the Euro zone’s largest economies The Mannheim-based ZEW Institute’s Economic Sentiment Index came in at 13.8, unchanged from November, while market analysts anticipated a slight acceleration to 14.2. In addition, the figure was below its log-term average pf 24.0 points. Meanwhile, the Current Conditions Index advanced to 63.5 in December, indicating positive trends within the German economy, whereas markets expected the Index to hold steady at 58.8 in the reported month.

USD

“We maintain our view that import prices will gradually move away from deflation territory in the coming months, following improving global commodity prices and the gradual waning of the effect of a stronger dollar”.

- Blerina Uruci, Barclays

US import prices dropped markedly last month after two consecutive monthly gains, amid the lower cost of imported petroleum and stronger US Dollar. According to the US Department of Labor, import prices fell 0.3% in November, the biggest decline since February, following the previous month’s downwardly revised gain of 0.4% and meeting analysts’ expectations. On an annual basis, import prices decreased 0.1%, the smallest fall since July 2014, compared to October’s drop of 0.3%. Last month’s drop in import prices is unlikely to impact expectations that the Fed will raise rates at the end of its two-day policy meeting on Wednesday this week. The Greenback’s surge and a plunge in oil prices between June 2014 and December 2015 dampened import price inflation. Imported petroleum prices declined 4.7% in November, the biggest drop since February, following the prior month’s increase of 7.3% and offsetting a 10.6% rise in the price of imported natural gas. Excluding petroleum, import prices held steady last month, compared to October's 0.1% decline. The report also showed that export prices fell 0.1% in the same month, after climbing 0.2% in October. Year-over-year, they dropped 0.3% in November, the smallest decrease since August 2014, after dipping 1.0% on the same basis in October.

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