Currencies weaken as economies slow

[UK economy expected to shrink for fourth quarter in a row]

The UK's third-quarter GDP figures mark the official start of a recession, and the economy is likely to weaken further from there. UK GDP is expected to experience negative growth for four consecutive quarters. Positive growth will not return until the fourth quarter of 2023. By the end of the forecast period, the unemployment rate will rise to 5%. Mortgage rates will be pushed up by a rise in central bank rates, and UK political turmoil is likely to continue.

[The Bank of England still has room to raise interest rates]

Risks to the UK inflation outlook are skewed to the downside, but the BoE is likely to hike rates further until the terminal rate reaches 4.25%. Inflation risks, which have remained on the upside for a prolonged period, have tilted to the downside as input costs continue to normalize and demand conditions deteriorate further. The market forecast is that the Bank of England will raise interest rates by 50 basis points in December and February, and 25 basis points in March, taking the terminal rate to 4.25%.

[The trend of the pound is beginning to reverse]

Whether due to the stability of the Sunak-Hunt partnership or the simple fact that the fall in sterling has lured investors into UK assets, calls for GBP/USD to fall below parity have faded from the headlines; instead, markets are seeing A growing number of commentators have issued more optimistic forecasts. Since hitting a low of 1.0356 on September 30, GBP/USD has rallied around 16% and returned above 1.20 last week.

[British central bank mortgage lending data rose 25 basis points in October]

Mortgage lending activity slowed further as the effective rate on newly drawn mortgages rose 25 basis points to 3.09% in October. Meanwhile, net personal mortgage debt fell from £5.9bn to £4bn in the month. As for consumer credit growth, year-on-year growth eased slightly to 7.0% last month from 7.1% in September.

[The UK plans to launch a £1 billion home insulation project]

The British government intends to allocate 1 billion pounds ($1.2 billion) of public funds for home insulation from early next year, an aid measure previously only provided to poor families. The UK government said the proposed scheme, which would run from early 2023 to March 2026, would help achieve a goal of "reducing energy consumption by 15% by 2030".

[Inflation in the EU cannot be solved simply by raising interest rates]

Tinagli, Chairman of the Economic Committee of the European Parliament: Inflation in the EU cannot be solved simply by raising interest rates. Care needs to be taken not to raise interest rates to levels that lead to recession. Whether the crypto regulatory toolkit is "adequate" is still being assessed. Negotiations on cryptocurrency regulation are not expected to reopen. The EU cryptocurrency regulatory toolkit is good in principle. Cryptocurrencies need to be prevented from having a systemic impact.

[Inflationary pressures ease and economic growth slows, the US index may weaken]

The dollar could weaken further in the near term, especially if the latest ISM manufacturing survey, PCP report and non-farm payrolls report show more evidence that inflationary pressures are easing while economic growth starts to slow before next year, and Signs of a slowdown are more pronounced. This month, the U.S. Treasury yield curve has inverted even more, pointing to rising recession risks, despite recent easing in financial conditions.

[Easy inflation data in the euro zone will weigh on the euro]

Recent hawkish comments from the European Central Bank have fueled speculation of a 75 basis point rate hike. Speculation could increase further if inflation data unexpectedly rises today and tomorrow. EUR/USD made another failed attempt yesterday to move closer to 1.05, and a surprise upside move on the inflation front could finally push EUR/USD above this barrier. However, euro zone inflation is expected to ease slightly in November. If today's German CPI data points in this direction, the interest rate fantasy in the market and the euro may be subdued, but the downward pressure on the euro may be limited due to the hawkish ECB rhetoric and still high inflation.