Currency Note

Bleak winter ahead as food inflation reaches new high

By Roseanne Bradley December 1st, 2022

The cost of meat, eggs, dairy and coffee have all seen considerable price hikes

The GBP/USD rate strengthened over the course of the month, putting today’s rate approximately 15% higher than its September low. Questions remain over the state of the US economy. Yesterday, the US GDP growth rate was revised to 2.9%, revealing a better outcome than the forecast of 2.7%.

Moreover, customer spending rose to 1.7% rather than the anticipated 1.4%. All positive signs that despite raising interest rates the US economy is fending off recession. However, the employment rate in the US increased by 127,000 jobs in the last month, which is the lowest increase since January 2021 and suggests labour demand is low.

The British Retail Consortium (BRC) forecast a “bleak winter” yesterday, following data which revealed food inflation hit 12.4% in November. Prices of meat, eggs, dairy and coffee saw considerable price hikes. These increases were fuelled by the soaring costs of energy, animal feed and transport.

The BRC index also revealed that overall shop price inflation rose to 7.4% in November, up from 6.6% in October.

Yesterday banking group HSBC announced its latest round of closures which amount to 114 branches – more than a quarter of its network.

The annual inflation rate eased slightly in the euro area yesterday to 10%, from a record-high of 10.6% in October. Today we will see data releases on unemployment in Italy and the euro zone for October.

Today, US markets eagerly await personal spending and personal income stats which are forecast to remain largely unchanged.

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GBP: Steady pound looks to data for influence

This morning markets heard UK house prices have fallen 1.4% in November – the fasted pace since June 2020. This drop may come as rising borrowing costs influence buyers’ sentiments.

Later this morning we will hear the S&P Global/CIPS Manufacturing PMI for November which is expected to remain unchanged at 42.6.

GBP/USD: the past year

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EUR: Eurozone inflation dips to 10%

Yesterday markets heard eurozone inflation was 10% in November, down from 10.6% in October. This is the first decline markets have seen in 17 months and is expected to be fuelled by soaring energy costs.

Markets heard inflation rates from Italy yesterday which reached 11.8%, higher than the forecasted 11.5%. While in France, inflation met economist expectations coming in at 6.2%, slightly lower than the predicted 6.3%

This data will largely impact the European Central Bank’s major decisions. The central bank is due to meet today for its monthly meeting. Interest rates in the euro area are expected to be 2.50% by the end of this quarter, following the 75 basis points rise that we saw at the end of October.


USD: Employment growth slows

Employment rate in the US increased by 127,000 jobs in the last month, which is the lowest increase since January 2021. This suggests labour demand is low.

Yesterday evening, markets heard from Federal Reserve chair Jerome Powell who announced that the reserve may scale back the pace of interest hikes in December. This comes following the 75 basis point rise to 3.75-4% in November 2022.

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