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Forex News December 17, 2021

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Australia

Due to an increase in coronavirus infections, an Australian state has tightened its border. 

Beginning at midnight on Sunday, Western Australia will limit travel from other states. Premier McGowan said the reforms would prevent “pandemonium and disorder” in the eastern states. 

In Australia, limitations connected to the coronavirus have been gradually tightened. So yet, only little measures have been taken.

 

UK

 The Bank of England raised interest rates because the labour situation was causing them concern. 

The following items stand out in the BoE statement from yesterday:

The BoE is mostly convinced that Omicron can be controlled, although December 2021 and Q1 2022 are projected to be low.

• Inflation is now forecast to peak at 6% in April 2022.

• The BoE reminds us that they are worried about price stability and that the 2 percent inflation objective is still in place.

• They are concerned about the labour market.

At its November meeting, the Committee decided that if incoming data, particularly on the labour market, were broadly in line with the central projections in the November Monetary Policy Report. It would be necessary to raise Bank Rate in the coming months in order to return CPI inflation to the 2 percent target in a sustainable manner. Recent economic trends show that these prerequisites have been satisfied.

The labour market is tight and has remained tight, while domestic cost and pricing pressures are showing symptoms of increasing endurance. Although the Omicron variation is expected to have a short-term influence on activity, its impact on medium-term inflationary pressures is unknown at this time.

Germany 

IFO Business Climate in Germany in December was 94.7, compared to 96.5 the previous month. 

• The current situation 96.9% vs. 99.0% before. 

• Outlook 92.6, compared to 94.2 previously. 

IFO: Economic sentiment in Germany has deteriorated. The outlook is more bleak. Supply shortages and the fourth wave of the cornoavirus are posing problems for German businesses.

 

Eurozone: 

Eurozone HICP Final +0.4% m/m in November 2021, compared to +0.8% m/m the previous month. 

• HICP Final vs. 4.9 percent +4.9 percent year-on-year previously 

• The HICP does not include energy, food, drink, or cigarettes. Prior: 0.0 percent vs. m/m +0.1 percent 

• HICP excluding energy, food, alcohol, and tobacco is 2.6 percent y/y +2.6 percent, compared to 2.6 percent y/y +2.6 percent previously. 

There are no surprises in the final readings. The headline rate of inflation is 4.9 percent year on year. The ECB predicts that the core reading will rise to 3.2 percent next year before falling again.

 

Turkey

CBRT action undermines the Lira even further. 

While central banks discuss or implement rate hikes to combat inflation, Turkey’s central bank reduced rates yesterday. Why? 

The Lira declines more as a result of President Erdogan’s unconventional opinion that high interest rates create inflation. Inflation in Turkey has surpassed 20%. 

This should serve as a case study for why central banks and governments should keep their monetary policies independent. Yesterday, President Erdogan fired two finance ministers. They had to be striving to keep the ship afloat before the rate drop.

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