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The US Dollar resumed its decline against the British Pound and the Euro as investors and traders focus on the release of US inflation data due on Thursday January 12th. The US Dollar Index (DXY) remains pressured towards the 103.00 round figure, barely higher than the lowest level recorded in the last seven months.

As market participants wait for the US CPI data to adjust their strategies, some economists note that the US dollar weakness could also be attributed to the Federal Reserve (Fed) Chair Jerome Powell’s inability to provide clear directions for the US central bank’s next moves, amplifying uncertainty and weighing on the US currency.

Analysts at MUFG bank suggest that the US dollar could suffer further losses barring strong US inflation data. In their report released yesterday, they note that “unless market expectations are challenged by the stronger incoming data, it leaves the US Dollar vulnerable to further weakness in the near-term.”

China inflation rate (CPI)

On Thursday, China’s National Statistics office will publish December’s consumer price index data. The Chinese administration is working to boost economic growth in the face of renewed headwinds from the COVID-19 outbreak. Inflation figures are expected to have an impact on the People’s Bank of China’s (PBOC) plan for monetary policy tightening.

Effectively, China is the world’s manufacturing center. If production costs increase for Chinese firms, they will likely end up pushing through the supply chain to the rest of the world.

The PBoC’s governing board has vowed to help households and private businesses by providing greater financial support to aid in their recovery.

Earlier this week, China’s government announced that it would relax regulatory scrutiny of the country’s largest tech firms. On Wednesday morning, Chinese tech stocks surged as investors thought that the tech firms’ operating conditions would improve in the next months. 

UK Gross Domestic Product (GDP)

The UK economy has made the financial headlines many times in the past few months, but mostly for negative reasons. High inflation readings in the last 12 months have been added to the list of problems that the UK government faces regarding economic reforms in one of the strongest economies in the world.

On Friday January 13th, the UK’s Office for National Statistics (ONS) is expected to publish the country’s Gross Domestic Product (GDP) figures for November. Economists suggest that the ONS report will show a 0.2% drop on a month-to-month basis. It should be noted that UK’s GDP grew 0.5% on a monthly basis in October. 

This week, a report published by Goldman Sachs revealed that its economists forecast a 0.7% UK GDP drop in 2023, predicting “a notably more pronounced downturn in the UK than the Euro area”.

If the UK GDP has contracted more than expected, there could be an impact on the GBP currency pairs. A better than anticipated GDP figure could strengthen the pound, whilst a larger than expected contraction could force the pound to lose ground.

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

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