Today’s market session across multiple assets has been relatively uneventful. This is largely due to the absence of U.S. investors, who are commemorating the late 39th President of the United States, Jimmy Carter. Nonetheless, we have seen a few noteworthy economic releases from major global economies. The British pound remains under pressure, with the GBP/USD pair hitting its lowest level since the autumn of 2023.
The Dragon Flying Low
Macro data from China continues to be uninspiring, despite the government’s periodic announcements of new economic stimulus packages. While many developed countries are grappling with high inflation, China faces the opposite problem: deflation. In December, the year-over-year consumer price index rose by just 0.1%, continuing a trend that has persisted for several quarters. The situation is even worse for producer prices, which fell by 2.3%, marking another month of deflation in the producer price index—a trend that began in September 2022.
The question remains: can Chinese policymakers find a way to revive the world’s second-largest economy? After the data release, the yuan weakened slightly, though this was merely an extension of a depreciation trend that has been ongoing since September.
Not Great, Not Terrible
German economic data painted a mixed picture today—better than usual, though not entirely positive. Exports for November rose by 2.1%, exceeding forecasts and breaking a two-month decline. However, imports underperformed significantly, falling by 3.3% instead of the anticipated 0.7% increase. While this trade imbalance might benefit Germany’s trade balance in the short term, it could disrupt industrial production in the long run.
Speaking of industrial production, Germany saw a year-over-year decline of 2.85%. While this result isn’t great, it’s worth noting that it was the second-smallest drop of the past year. On a monthly basis, industrial production grew by 1.5%, beating expectations of a 0.5% increase. As one might say: “not great, not terrible,” especially considering the prolonged stagnation of the German economy over recent quarters.
In addition, November’s retail sales in the eurozone disappointed, rising by just 1.2% year-over-year compared to the forecasted 1.7% and the previous reading of 2.1%.
GBP Under Unrelenting Pressure
The British pound continues to face challenges. The GBP/USD pair dropped to 1.225 today, marking its weakest performance against the dollar since autumn 2023. It’s worth noting that the low from that period hovered near 1.20. While the pound’s weakness against the dollar might align with broader currency market trends, it’s also evident in the GBP/PLN pair, which fell below 5.09 PLN today. This is despite a challenging environment for emerging market currencies like the Polish zloty. The GBP/PLN pair has now hit its lowest level since mid-September.
What’s driving the pound’s decline? A mix of unfavorable circumstances. Investor confidence in the UK government, particularly its ability to manage public finances responsibly, has been waning—ironic, considering this was supposed to be a hallmark of the Labour Party administration. Recent polls further highlight plummeting public support for the government just months after it took office. Adding to the woes, inflation has rebounded, dampening expectations of interest rate cuts.
The culmination of these factors has led to rapidly rising bond yields, with 10-year gilt yields reaching their highest levels since 2008. This has increased the cost of debt servicing, making UK bonds and the pound even less attractive. And all of this is happening before new tariffs from Trump’s administration are implemented. Tough times lie ahead for the pound and the British economy.
Author: Adam Fuchs, Currency Analyst at Walutomat.pl
Source: ManagerPlus
