This would mechanically weigh on Sterling.

We have seen the Pound react notably to retail figures in 2024, ensuring the Pound will be kept on its toes right into the weekend.

Source:  Poundsterlinglive

Market participants gear up for a critical week that will feature several major central banks' last policy meeting of the year. Ahead of these key events, flash Manufacturing and Services Purchasing Managers Index (PMI) data for December from Germany, the Eurozone, the UK and the US will be watched closely by investors on Monday.

The US Dollar (USD) Index benefited from rising Treasury bond yields and the cautious market mood, gaining nearly 1% in the previous week. Early Monday, the USD Index fluctuates in a tight range below 107.00. The US economic calendar will also offer NY Empire State Manufacturing Index data for December. On Wednesday, the Federal Reserve (Fed) will announce monetary policy decisions and publish the revised Summary of Economic Projections (SEP) following its two-day meeting.

US Dollar PRICE Last 7 days

The table below shows the percentage change of US Dollar (USD) against listed major currencies last 7 days. US Dollar was the strongest against the Japanese Yen.

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

During the Asian trading hours, the data from Australia showed that the Judo Bank Composite PMI edged lower to 49.9 in December from 50.2 in November. Meanwhile, Retail Sales in China increased by 3% on a yearly basis in November, falling short of the market expectation for a 4.6% growth. After posting small weekly losses last week, AUD/USD holds steady above 0.6350 to begin the week.

EUR/USD gained traction on Friday and snapped a five-day losing streak. In the European morning on Monday, the pair clings to small daily gains above 1.0500. European Central Bank (ECB) President Christine Lagarde will be delivering a speech during the European trading hours.

After posting large losses on Thursday, GBP/USD continued to push lower and touched its weakest level since late November near 1.2600 on Friday. The pair stages a technical correction toward 1.2650 on Monday.

USD/JPY preserved its bullish momentum and rose more than 2% in the previous week. The pair stays in a consolidation phase at around 153.50 in the early European session. Jibun Bank Manufacturing PMI rose to 49.5 from 49 in November and Services PMI improved to 51.4 from 50.5.

Gold turned south in the second half of the previous week and registered large losses on Thursday and Friday. XAU/USD holds its ground on Monday and trades slightly above $2,650.

Central banks FAQs

What does a central bank do?

Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.

What does a central bank do when inflation undershoots or overshoots its projected target?

A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.

Who decides on monetary policy and interest rates?

A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.

Is there a president or head of a central bank?

Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.

Source: FXSTREET

WHERE WE STAND

LOOK AHEAD

The UK and Malaysia now have a free trade agreement for the first time. On Dec 15, the UK joined Malaysia and 10 other countries to become the newest member of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

The UK has always been a proponent of free trade. Its CPTPP journey started in 2018 when we first stated our interest in joining this “gold standard” agreement. Since then, the UK has been through political change, overcome supply chain issues caused by Covid-19, as well as navigated a changing global political landscape. But our commitment to free trade remains steadfast. We are grateful to Malaysia and other free trading nations in CPTPP for their support in making UK membership a reality.

In an era which sees rising protectionism and the fragmentation of global supply chains, we need to join together and push for free and fair trade, and membership of CPTPP is a big step in that direction.

There are obviously strong economic benefits from the UK’s CPTPP membership. With the UK joining, the combined gross domestic product (GDP) of the CPTPP members has increased from over £9 trillion (RM51 trillion) to around £12 trillion — or from around 12% to around 15% of global GDP.

With a market of 68 million consumers and the sixth-largest economy in the world, the UK is the second-largest economy in the grouping, making it an attractive market for Malaysia and all CPTPP countries.

Joining this existing trading group means that over 99% of current UK goods exports to CPTPP members will be eligible for tariff-free trade. For example, Malaysia will enjoy cheaper chocolate and cars from the UK while the UK will enjoy cheaper cocoa and electricals from Malaysia.

Tariff liberalisation and new Rules of Origin mean that supply chains can grow between our two countries — for example, we could see growth in Malaysian aerospace components being exported to top-tier aerospace manufacturers in the UK, or new investments by automotive companies in each other’s markets.

This trade deal also helps position British companies to expand into new markets and follow the likes of HSBC, AstraZeneca and Arup, who have been committed to their investments in Malaysia for decades. British and Malaysian businesses will also stand to operate more on a par with local firms. Red tape can be cut and data localisation requirements removed, leading to greater ease of doing business.

Not only is joining CPTPP crucial to the UK’s economic growth mission, it is also important to our security, and our interest in an open and stable international order. We are embedding ourselves deeper into an existing and emerging network of economic, diplomatic and security partnerships in the region. We want to play an active role in promoting free trade through CPTPP, and promote growth through our dialogue partnership with Asean — and we are looking forward to working with Malaysia as chair next year.

The UK’s membership also sends a very strong signal that CPTPP is an outward-looking group that wishes to welcome into its ranks all countries looking to trade freely and adhere to high standards and the rule of law. We will champion free and fair trade, fight protectionism and remove barriers to trade at every opportunity.

This is a time for businesses to prepare to take advantage of the agreement and boost our bilateral trade that currently stands at £5.7 billion. I urge companies to discover the opportunities created by the UK’s membership of the agreement and take advantage — before your competitors do it first.

Source: Theedgemarkets

Property price data continued to show encouraging signs

China's National Bureau of Statistics kicked off the last data dump of the year with November's 70-city property prices release. New home prices fell by -0.2% month-on-month, while used home prices fell by -0.35% MoM. These levels represented the smallest monthly declines since June and May of 2023 respectively, and bringing the decline from the peak to -9.6% and -16.1% respectively. Overall the data is another positive signal that China's property market could be bottoming out. 

Of the 70-city sample, 21 cities saw new home prices unchanged or move higher in November, which was far and away the highest proportion of the year. In the secondary market, 12 of 70 cities saw prices unchanged or higher. As expected, prices appear to be stabilising from the core tier 1 and 2 cities to start, while a recovery in lower tier cities will take some time and is likely to be uneven. 

The activity data unsurprisingly remained sluggish. Property investment continued to slump, edging down 0.1 percentage point to -10.4% year-on-year, year to date. New residential property starts and completions stayed heavily in contraction at -23.1% and -26.0% YoY ytd respectively. Real estate investment still likely faces some hurdles before it is no longer on a headwind on growth – prices have not yet stabilised, but property inventories are still relatively elevated at this stage, and property developer sentiment remains cautious. Recent supportive policy measures indicate that we should see the pace of state-owned enterprise and local government purchases of unsold homes pick up in 2025, which should help with the inventory situation. 

A second consecutive month of improving price data is a positive signal for the property market bottoming out, and we expect a trough to be established in 2025 and the start of an L-shaped recovery to take effect.

More cities saw property prices stabilise in November

Fixed asset investment softened slightly as caution persists

Fixed asset investment (FAI) growth edged down 0.1 ppt to 3.3% YoY ytd in November, the lowest level of the year. This bucked our and market expectations for a slight uptick on the month.

The slowdown was broad-based on the month, seen in both public (6.1%) and private (-0.4%) investment, both of which dipped 0.1 ppt on the month as well. In terms of industry subcategories, most slowed slightly as well, including the hi-tech FAI category which continued to comfortably headline growth at 8.8% YoY ytd, but nonetheless slowed 0.5 ppt on the month. The only significant category to see a pickup was water conservancy, environment & utility management, which is likely tied to a slight pickup of green infrastructure investment. 

As the FAI data is released in YoY ytd terms, volatility toward the tail end of the year tends to be very low, and as such it's likely that it will end the year within 0.1-0.2 ppt of the current level. This year's FAI has been constrained amid weak private sector sentiment but also limited room to operate for many local governments. We expect an acceleration of FAI in 2025 amid a more supportive fiscal policy stance. 

Retail sales unexpectedly slowed in November

Retail sales surprisingly slowed to 3.0% YoY in November, down from October's stronger-than-expected 4.8% YoY. This was the big disappointment of the month, as retail sales failed to build upon the momentum and came in well softer than both consensus and our forecasts.

We continued to see the beneficiaries of trade-in policies perform strongly in November, with household appliances slowing to a still impressive 22.2% YoY, and auto sales up to a 9-month high of 6.6% YoY. Amid the transition to electric vehicles, petroleum & related products (-7.1%) continued to see soft sales growth.

Discretionary consumption outside of these categories remained soft. Cosmetics (-26.4%), communications appliances (-7.7%), gold & jewelry (-5.9%), as well as garments (-4.5%) all remained well in negative territory. 

We also saw the "eat, drink, and play" theme which has solidly outperformed for most of the year start to fade, with catering (4.0%), alcohol and tobacco (-3.1%), and sports & recreation (3.5%) softening to around or below the headline growth rate.

A silver lining was seen in furniture sales, which rebounded to 10.5% YoY, the highest level of the year. This uptick of the last two months add another signal for the property market recovery.

Household confidence clearly remains soft, and it remains to be seen if the "vigorous support" for consumption promised next year will be effective in stimulating a recovery. We expect the rollout of supportive policies could take some time, but overall retail sales growth should recover in 2025.

Retail sales slumped as discretionary consumption drag persists

Value added of industry edged up

Value added of industry edged up by 0.1 ppt to 5.4% YoY in November, which was in line with market expectations, and the only of three main activity indicators to see an uptick in November. Recent survey data has indicated that domestic activity might be recovering, and there could also be a near-term uptick in export frontloading ahead of potential tariff hikes in 2025. 

In terms of subcategories, hi-tech manufacturing (7.8%), auto (12.0%), rail, ship, and aeroplanes (7.9%), and chemicals (9.5%) comfortably outpaced the headline. In terms of products, electric vehicle production accelerated to 51.1% YoY, while industrial robots (29.3%), semiconductors (8.7%), and solar panels (10.9%) continued to outperform but saw slower YoY growth in November. 

Export demand has been a contributor to solid industrial production growth in 2024, but this factor is expected to weaken somewhat in 2025 as tariffs set in. The silver lining is that for China's main areas of growth, the US market is not a major area of focus. Additionally, China's domestic demand is expected to improve to help fill some of this gap as stimulus policies roll out, but the impact remains unclear. 

Value added of industry has been stable for the last few months

Policy support looks set to ramp up in coming months

Despite data coming in a little softer than expectations, with only one month of data still to come, China will likely manage to complete its "around 5%" growth objective for 2024. We maintain our forecast of 4.8% YoY growth in 2024. 

The Politburo meeting and Central Economic Work Conference from last week signalled that we will see a strong policy support push next year, in line with our expectations laid out in our 10 questions for China in 2025 article. The key language on fiscal and monetary policy direction turned more supportive – from "proactive fiscal policy" to "more proactive fiscal policy" and from "prudent monetary policy" to "moderately loose monetary policy."  The fiscal deficit target and the special government bond issuance targets were both raised, which along with November's RMB 10tn debt package should create more room for fiscal stimulus in 2025. 

The speed and scale of domestic stimumlus will likely play the biggest role in determining whether or not China's economy will be able to maintain stable growth. The eventual growth target setting at next year's Two Sessions meetings in March will give a better indication of how confident policymakers are in terms of growth stabilisation. 

Once considered a starting point for building assets, installment savings accounts are increasingly falling out of favor with customers.

Although these accounts promise high interest rates, much like add-on certificates of deposit in the U.S., they often come with terms, making customers feel the returns aren't worth the effort. The recent surge in retail investing in stock and cryptocurrency markets has also contributed to this trend.

According to Korea's five major banks — KB Kookmin, Shinhan, Hana, Woori and NH NongHyup — the total balance in these accounts stood at 39.54 trillion won ($27.5 billion) in November, marking a decline of more than 12 percent compared to the same period last year. In contrast, during the same period, the balance of deposits increased to 948 trillion won, growing by more than 9 percent from 868 trillion won.

This was the first decrease in three years. From 2021 to 2023, the balance of installment savings accounts increased steadily each November, rising from 35 trillion won to 45 trillion won. Interest rate hikes, which caused a downturn in the stock market, had driven investors toward savings accounts and deposits.

Market watchers attribute the decline partly to the Bank of Korea moving into a cycle of rate cuts, which has encouraged a surge in retail investment. At the same time, many have turned to the crypto market, driven by Donald Trump’s presidential victory in the United States and market optimism. According to Coinbase, a major cryptocurrency exchange, the price of Bitcoin recorded $105,087 on Sunday, surpassing the $105,000 mark for the first time.

Others point to the complicated criteria for earning higher interest rates. While banks advertise rates significantly above the policy rate, customers often must meet various requirements — such as issuing a new credit card, consenting to receive the bank's marketing information or participating in bank promotions — to qualify for those advertised rates.

Source: Koreatimes