GBP/USD is rising as UK jobs data showed that wages continued to climb to 6.1% in October, adding pressure on the BoE to hike interest rates aggressively.
· German ZEW economic sentiment is expected to improve in December
· US inflation is expected to cool to 7.3% YoY in November from 7.7%
· Cooler inflation could fuel more dovish Fed bets and pull the USD lower
While European stocks finished yesterday lower, stocks on Wall Street managed a more upbeat session, closing the day on higher ground. The Dow Jones rose 1.6% to the key 34,000 level, and the S&P500 ended Monday just shy of 4000.
The positive close on Wall Street is transferring to Europe, with European bourses expected to rise after the opening bell. The DAX points to a gain of 0.2% on the open; the CAC is set to rise 0.3% and the FTSE 0.25%.
In the FX markets, the USD is weakening ahead of US inflation data after three consecutive days of gains.
UK jobs data
The UK unemployment rate ticked higher to 3.7% in October, up from 3.6%. While this is still close to 48-year lows, signs of weakness are starting to creep into the labour market. The claimant count also jumped in November, with 30.5k people claiming unemployment benefits, and vacancies fell for a sixth straight month, again highlighting signs of weakness that are starting to show.
Meanwhile, average earnings excluding bonuses jumped to 6.1% in October, up from 5.8%, which is just about keeping pace with core price inflation. However, higher-than-expected wages pressure the BoE to tighten policy more aggressively going forward to avoid inflation becoming entrenched. As a result, GBP/USD is rising and trades at 1.2290 at the time of writing.
German ZEW economic sentiment
Both the EUR/USD and the DAX are rising ahead of German economic sentiment data. Expectations are for economic morale to improve again in December after rising in November. The German ZEW economic sentiment index is forecast to rise to -26.4, up from -36.7 in November. The current conditions index is also expected to improve from -64.5 last month to -57. Better-than-expected economic confidence and current conditions could lift the market mood, boosting the euro and the DAX. The German index hovers below the December high of 14600.
US inflation
All eyes are on US inflation data due later today, and optimism is growing that the data will continue to support the narrative that peak inflation has passed. The US dollar has been falling since the October CPI data showed that inflation cooled. While stronger-than-expected PPI numbers last week have reigned in expectations of a rapidly cooling CPI print, expectations for November CPI are still for a slowdown.
November CPI is expected to cool to 7.3% YoY, down from 7.7%YoY. Meanwhile, core inflation is expected to drop to 6% from 6.3%. Should core inflation prove to be stickier than expected, investors could temper expectations of a less aggressive Federal Reserve, and the US dollar could rebound, and stocks and Gold could fall. Meanwhile, cooler-than-forecast inflation could raise bets of a more dovish Fed and pull the USD lower while lifting stocks.
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Sources: Bloomberg, CNBC, Reuters
Original article provided by Trading Writers
