Two defining developments
Both for their respective currencies but also for wider market conditions, recent developments in the UK and Chinese economies will have a significant impact. The two headlines that have recently captured traders’ attention are publications of deflation in China and a push back on declining rate expectations in the UK. Let’s unpack China’s deflation statistics first.
We know that the Chinese economy has a significant influence not only on the broader regional economy but also on a global scale. Deflation is still a concerning and largely unpalatable feature of an economy even after a period of high inflation. It seems to be the worst economic enemy of consumers, businesses and policy makers. Whilst simple on paper, the implications of disinflation to an economy can be devastating when of sufficient momentum. Data published overnight saw consumer and producer price indices fall for the month of October. China has had a remarkably different experience with inflation versus the rest of the world. Authorities have most recently been attempting to add stimulus rather than constrain activity and thereby the price level. Disinflation is inextricably linked to economic underperformance and such data in China is troubling for global growth expectations. Weakness in regional FX, including the antipodeans, may be a reasonable conclusion in the short run.
Back to the UK where BoE governor Andrew Bailey has pushed back against expectations of rate cuts in the UK. The Bank’s own chief economist had earlier this week explicitly addressed the matter of when rate cuts may take place, leaving the middle of 2024 in the market’s sight for the first cut to Bank rate. Bailey was keen yesterday to caution of the risks that remain to inflation despite the Bank’s recent decision to not hike further. GBP has fallen back from its recent highs and the push back from the governor on the expectation for rate cuts will be a necessary condition to keep Sterling bid. It is unlikely to be a sufficient condition on its own, but the story is important for global rate expectations with western central bank heads seemingly resolved to keep rate cut expectations off the cards.
Discussion and Analysis by Charles Porter
Click Here to Subscribe to the SGM-FX Newsletter
Related Insights
Daily Brief – British Pound
Humphrey Percy
Fri 5 Dec 2025
British Pound A reflection of post Budget relief that it’s over rather than due to its imaginative, growth positive or business friendly measures which are all conspicuously lacking, but British Pound is up over 1% this week. Braver voices than our own have claimed that a more positive view of British business activity is the […]
Daily Brief – Chancellor Reeves
Humphrey Percy
Wed 5 Nov 2025
Chancellor Reeves Market observers were no better informed at the end of the Rachel Reeves speech than they were at the outset yesterday morning. The only surprise was that having comprehensively floated options in the past two months for inclusion in her November 26 Autumn Statement, that the Chancellor should have elected to speak at […]
Daily Brief – Office of Budget Responsibility
Humphrey Percy
Wed 3 Dec 2025
Office of Budget Responsibility If matters were not already murky enough, it now transpires that the unscheduled release of forecast on Budget Day was not a first for the OBR. Not really much of a story now that the previous Head of the OBR has done the honourable thing and fallen on his sword. But […]
