Currency Outlook: US Retails Sales and UK CPI Leave Markets Relatively Unmoved.

GBP: UK Inflation Holds Steady Despite Slight Beat in Forecasts
The UK’s consumer price data revealed a persistent decline in both headline and core inflation, despite slightly surpassing expectations. Notably, rising crude oil prices were the primary driver of upward inflation, offset by moderating factors such as food, non-alcoholic beverages, and household goods. A promising decline in Producer Price Index (PPI) could signal future reductions in Consumer Price Index (CPI) figures. The Bank of England is closely monitoring these developments ahead of its November meeting.

USD: US Dollar Retreats as Treasury Yields Surge
The US Dollar’s strength in the Asian session waned after recent gains driven by climbing Treasury yields, reaching multi-year highs. US retail sales for September exceeded expectations, rising by 0.7% month-on-month. Treasury yields surged across various maturities, with 5- and 7-year bonds witnessing substantial increases. The 2-year Treasury note reached 5.24%, a level last seen in 2006, while the benchmark 10-year note approached 4.88%, the highest since 2007.

EUR: Italian Government Approves 2024 Budget Amid Debt Concerns
Italy’s government has approved a budget for 2024, encompassing tax cuts, increased spending, and borrowing to bridge fiscal gaps, despite mounting worries about the country’s debt. Investors have recently demanded higher yields on Italian government debt, as reflected in the BTP-Bund spread, which now exceeds 200 basis points, making it more expensive for Italy to borrow funds compared to Germany. The European Central Bank has emphasized “fiscal discipline” to contain the widening spreads. Balancing monetary and fiscal policy is crucial to achieve the inflation target, especially as the ECB maintains rates at a record 4% ahead of its upcoming rate-setting meeting next week.

Economic Calendar