6 December 2023: Pound finding support from BoE stance

6 December 2023: Pound finding support from BoE stance


  • Are migration curbs going to add to the country’s economic woes?
  • Service activity picked up in November
  • Business activity fall adds to recession fears
GBP – Market Commentary

Greene remains concerned about wage growth

The Government appears to be determined to reduce net migration figures that have seen the population of the country grow by around 672k in the year to June this year.

Although this is lower than the 745k for the year ending December 2022, it is still adding enormous pressure to public services, which are straining under the weight.

To put the figures in context, net migration is the equivalent of adding a city the size of Sheffield every year! This is an entirely different story to the Government’s botched plans to send illegal immigrants to Rwanda, which only affects a relative handful of people.

The Government has announced new minimum salary for skilled people who wish to come to the UK, which they estimate will reduce the numbers by around 30%.

While the Minister responsible believes that the shortfall in skilled labour that has risen since Brexit can be resolved by upskilling, his conviction is not shared by critics of the scheme.

Migration is likely to be another hot topic in the General Election, preparations for which will begin in earnest in the New Year. Although the opposition is critical of the Government’s handling of the issue, they are yet ready to put forward a plan of their own, other than to say details will be published soon, and as with all new policies will be fully costed and funded.

An index of private sector business activity that had been in decline for the past three months showed signs of an improvement in its latest figures. Although the S&P Global/CIPS index has been falling constantly over the past quarter, it never actually reached the point where it was signalling a contraction.

The November data saw the composite data rise from 50.1 to 50.7. A slight increase but significant nonetheless, especially when viewed through the lens of declining activity in the Eurozone, which now appears likely to be in recession.

The theme of a slight improvement in the country’s prospects is also being seen in the housing market. The Nationwide in its monthly report said that residential house prices had risen by 0.2% as the mortgage rate began to fall.

None of the individual data is especially encouraging but taken together it all points to a reduction in the level of decline.

The pound was buoyed by the Bank of England’s continued belief that there is no change in the need for rates to be lowered for the foreseeable future. The news saw the pound rally to a high of 1.2652, but the continued rally by the dollar index still saw it close lower on the day at 1.2593.

However, versus the euro, it climbed to a high of 1.1673 and closed at 1.1665.

USD – Market Commentary

Economic outlook still a matter of opinion

There is a growing difference of opinion in the financial markets about when the Federal Reserve will either be able to cut short-term interest rates or be forced to do so by a significant decline in activity.

The employment data for November, which is due for release on Friday, is expected to show a moderate decline in new jobs created, but there is a growing feeling, driven by nothing other than anecdotal evidence, that the decline will be more than the legacy effect of interest rate hikes.

The first of the week’s jobs data was published yesterday, and it showed a decline in job openings from an upwards revised figure of 9.55 million in October to 8.73 million. This appears to indicate that the Fed is right to want rates to remain at their current level, although the market demands a greater level of proactivity considering the decline it believes is going to take place in the New Year.

Jerome Powell and his colleagues on the FOMC are almost certain to leave rates unchanged at their meeting next week, as they continue to profess to be data driven.

Treasury Secretary, Janet Yellen, continued her support for the Fed’s stance yesterday, making a speech in which she said that certain economists are being forced to eat their words having predicted a huge increase in jobless figures in response to rate increases.

She believes that in effect rates have done little more than revert to the mean having been exceptionally low for an extended period, and this was due to global economic events.

She feels that fears of a recession are unfounded, since there are none of the telltale signs being provided by the jobs market.

Given the proximity of the November non-farm payrolls, the market hopes that she won’t be eating her words by the weekend.

The increase in the level of the dollar index is appearing to gather pace. It rallied to a high of 104.09 yesterday and closed at 103.95.

EUR – Market Commentary

Retail sales numbers may deter rate cut expectations

While they are not as wide-ranging as in the UK, there have been a few bright signs amongst data releases recently which, while unlikely to point to the Eurozone escaping a recession, may mean that the downturn will not be as deep as was once feared.

It is now reasonably clear that the ECB has been a little behind, first in beginning to hike rates, and then by ending the cycle. While it tried to correct matters by increasing the increments by which it hiked rates, in a sop to the more dovish nations, it quickly returned to the more traditional twenty-five basis points per meeting.

As hikes continue to work their way into the economy, their effect is beginning to wane and ECB President Christine Lagarde appears confident that rates will not need to be cut before the summer, although her confidence is not shared by the whole market.

The region is still plagued by a “holy trinity” of concerns as inflation, weak demand and an increase in jobless figures point towards a continuing slowdown in economic output.

Lagarde is most likely pinning her hopes on the legacy effect of rate hikes coming to an end, since what she sees as rates being marginally restrictive the rest of the market sees as significant.

Ursula von der Leyen has topped the chart of the most powerful women in the world for the second consecutive time in a poll published by Forbes. She finished ahead of her colleague Christine Lagarde, U.S. Vice President Kamala Harris, and Giorgia Meloni, the Italian Prime Minister, in a poll dominated by politicians despite Jacinda Ardern, Sanna Marin and Nicola Sturgeon having been replaced by men.

It is time for von der Leyen to begin to use her power to cure some of the ills that are outside the scope of the Central Bank, in particular, the cause of the recent lurch to the right politically, which is due in no small part to her “laissez-faire” attitude to immigration.

It was interesting to note her comment recently, in which she called upon the UK to rejoin the EU to fix its “botched” Brexit deal.

One of the architects of Brexit, Donald Tusk, is embroiled in a row in Poland, where he is the incoming Prime Minister and is trying to oust the Governor of the Central Bank. The Governor, Adam Glapinski, believes that Tusk is politically driven given his alliance with the man Tusk defeated in the General Election and impinges upon the independence of the Central Bank.

The euro is having a bad week as the market increases bets on the ECB being forced to cut interest rates as soon as the first quarter of 2024. It fell to a low of 1.0778 yesterday and closed at 1.0795.

Have a great day!

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Alan Hill

Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.