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On October 3rd, Bank of America economists stated in a report that the UKs approximately £20 billion fiscal gap could be addressed through small tax increases, such as a gambling tax and a freeze on the income tax threshold. However, if the fiscal gap exceeds £20 billion, it may be difficult to fill without raising other taxes such as income tax, national insurance contributions, and VAT, or through cuts in public spending. The economists stated, "We note that raising VAT would be inconsistent with the Chancellors goal of reducing inflation, while a wealth tax appears increasingly unlikely."The French-German 10-year yield spread erased its previous narrowing trend and is now 82 basis points.French Socialist Party leader Faure: Le Cornus budget proposal has shortcomings.French Socialist Party leader Faure: The tax plan proposed by Le Cornu is far from our previous suggestions.On October 3rd, New York Fed President John Williams, a permanent FOMC member, stated on Friday that unpredictable changes are inevitable, and central banks need to recognize this and develop strategies to address these circumstances. He stated that coping with uncertainty requires strong principles and strategies to address a range of unexpected events, while noting that new situations will continue to emerge. Williams also stated that previously unconventional strategies, such as bond purchases, are no longer novel but rather a normal part of the toolkit. Furthermore, Williams stated that stabilizing inflation expectations is crucial and cannot be taken for granted.

EUR/USD falls toward 1.0500 as the US labor market tightens and investors investigate Eurozone inflation

Daniel Rogers

Jan 06, 2023 11:19

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In the early Tokyo session, the EUR/USD pair is hanging at the critical support level of 1.0520. The major currency pair is projected to prolong its slide to around the psychological support of 1.0500, as the United States' tight job market has spurred the threat of the Federal Reserve (Fed) sustaining rising interest rates beyond CY2023.

 

Investors applied heavy selling pressure on risk-perceived assets such as the S&P 500 as the better-than-anticipated addition of new payrolls to the U.S. labor market for the month of December could accelerate wage inflation in the future. Risk aversion was encouraged by investors, resulting in a jump in the US Dollar Index (DXY). The USD Index jumped to roughly 105.00 due to a boost in safe-haven demand. A reduction in investors' risk appetite affected the demand for United States government bonds.

 

The Automatic Data Processing (ADP) agency of the United States declared a large increase in the number of employment additions for the month of December, from 150K to 235K, compared to the previous release of 127K. It is abundantly evident that increasing demands for skill will be satisfied by paying higher remuneration, therefore stimulating wage growth and leaving individuals with more spare cash. The declaration could bring about a price index recovery through a spike in retail demand.

 

In the future, the United States Nonfarm Payrolls (NFP) statistics release will give further information on the employment situation. The Unemployment Rate is anticipated to continue at 3.7%. In addition, the disclosure of the facts regarding the Average Hourly Wage will be of the utmost importance.

 

Investors will eagerly scrutinize the release of the Eurozone Harmonized Index of Consumer Prices (HICP) numbers on Friday. In view of the fall in energy prices and German inflation, it is quite possible that Eurozone inflationary pressures will follow a similar trend.

 

As reported by Reuters, European Central Bank (ECB) policymaker Francois Villeroy de Galhau noted in a New Year's address: "It would be desirable to achieve the appropriate 'terminal rate' by the summer of next year, but it is too early to say at what level."


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