We had an interesting first week back on the market with pretty limited data releases and Sterling exchange rates having both strong and weak days against the Euro and Dollar.
The main focus for the week was U.S Employment and Non Farm Payrolls- which showed 223k jobs had been added in December which was lower than November’s figure- with a lower unemployment rate to go alongside it. Due to this release, the Fed will not slow down on their hike cycle and still look to raise interest rates further- however in my opinion, this is going to be dangerous- the reason why I am thinking this is generally December is a month where you do not see many layoffs (Due to it being Christmas) and at the same time you see a lot of temp staff in retail and hospitality to deal with demand, and consequently, over the next 3 months we will begin to see unemployment rise- which will mean the average consumer will not be able to afford the higher interest rates, which will undoubtedly lead into a recession.
The Fed will most likely only raise rates by 25bps at their next meeting in February, so it will not be as aggressive as we saw in 2022. but it will still be making lending more expensive for consumers, which helps slow down inflation in a big way.
Over the next week we do not have much key data releases apart from U.S inflation and UK GDP- which means the market will be less data-driven than usual- generally Sterling has only been benefitting when the stock markets have been more risk on (This is due to Sterling being a high beta currency).
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