Daily FX Update: US CPI cools triggering weaker dollar – Silicon Valley Bank

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Source: Bloomberg
The BoE has signalled that it will move cautiously in selling the £19 billion of gilts acquired during its emergency bond market intervention.
The chancellor is allegedly planning a spending freeze after Britain’s next general election to plug about half of the UK’s £50 billion fiscal hole. The chancellor may reduce planned public spending growth to 2% or lower.
The Eurozone faces a grim winter as recession bites just as double-digit inflation grips the region and war rages nearby, according to the European Union. EU officials slashed their growth forecasts for next year, predicting very little expansion. The see the economy currently in recession and it see contraction continuing through the first quarter.
US CPI through Oct. printed softer than expected triggering volatility across FX markets. As inflation cooled, markets quickly adjusted their expectations of the Fed, consolidating around a 50-bps hike in December. This served to undo much of the dollar strength seen in recent weeks, as the dollar trades 3% weaker since the CPI print. However, Services inflation could disrupt expectations moving forward matching Federal Reserve comments that although the pace of tightening may be slowing, the terminal rate is expected to be the same.
China’s daily Covid infections topped 10,00 for the first time since April, Cases in Beijing jumped as leaders targeted virus restrictions. Meanwhile the PBOC is expected to offer a $139 trillion dollar medium term lending facility to boost the economy.
USDILS slipped by over 3% through yesterday, following the CPI which saw a rapidly weakening dollar. USDILS had traded above 3.5 since the end of October.
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