The pound managed a surprising recovery during the week to the 10th February, against the Euro the pound managed to climb 1 ¾ cents from the week opening to the week close (1.1160- 1.1330). Against the Dollar the pound managed to claw back a similar amount with the week high topping out just under the 1.22 handle.
As previously mentioned in these reports, the week prior saw a heavyweight clash from the 3 central banks, where the doubt was cast over the future of the Bank of England’s rate hiking cycle.
It appears the bank are in their ‘sunset’ phase with one more 25 basis point rise heavily tipped in next months meeting. Thus causing the pound to weaken.
Looking ahead the Chancellor Jeremy Hunt is due to present his Spring Budget on the 15th March, he has given assurances to the market he will not be pulling any rabbits from the hat next month given the need to reduce inflation.
A point worth noting is the Banks meeting is not until the week after (23rd) last time after the Truss/Kwarteng saga the bank were forced to act on emergency bailout measures to put a floor under Sterling.
Friday saw the latest round of GDP numbers out for the UK. Gross Domestic Product (GDP) is the a monetary measure of the value of all goods and services produced by a country in a specific timeframe. It is one of the key indicators of Economic growth.
December’s reading came out at 0.5% which was deeper than the forecasted 0.3%. On Friday the reading came out that the economy grew 0% in the final quarter of the year, meaning the UK avoided a technical recession by the smallest of margins.
Remember for an official recession, there needs to be two consecutive quarters of negative growth.
Nevertheless, 0% growth is not something to shout about, the data only highlights what many market analysts have mentioned around the difficulty the UK economic is expected to face in 2023. GDP in 2022 increased by 4% in the UK, down sharply from the 7.6% increase in 2021.
The pounds gains throughout the week were down to an unwinding in last week’s sharp selloff where the pound was ‘shorted’ across the money markets.
In addition, a slight shift in global investor sentiment after softer US data and communication from the Federal reserve members.
The Euro trended lower throughout the week as support for the single currency was dented by economic data.
Retail sales in the euro zone fell by 2.7% in December, lower than the 2.5% forecast. This is the biggest decline since April 2021.
On Tuesday German industrial production came in at -3.1% another heavy blow for the Euro. However, some more positive inflation data came out on Thursday as inflation dipped to 9.2% in January. Down from the 9.6% recorded in December.
This has also raised fears that the European Central Bank (ECB) may need to alter their recent hawkish tone around rate hikes.
The Eurozone has benefitted heavily from falling gas prices, with prices falling around 85% from the highs recorded in August amid lower demands thanks to a above average winter temperature across the bloc. Out look across the Eurozone has improved vastly from 3 months ago when the situation looked a lot more difficult than now.
Analysts on wall street feel the bloc is far from being in the clear as they predict a shallow recession will materialise later this year. Eyes will be focused on how economic data records in the coming months, any weakness could cap the Euros upside potential.
This upside potential and greater outlook for the Euro has been remarkable, at the start of November EUR/USD was trading around 0.97.
Today EUR/USD is trading around the 1.07 handle but has peaked as high as 1.10 at the start of this month.
As EUR/USD is the largest traded pair globally it can often suffer at the hands of booming US data releases such as the latest round of Non farm Payroll data where the Euro lost 1.5 cent on the days trading due to the positive data set.
The dollar wavered through the past week where it was intermittently bolstered by a shifting market mood.
Concerns over the Chinese Spy balloon caused initial support for the safe haven dollar on Monday.
The support didn’t last long as the Federal Reserve chair Jerome Powell gave a Dovish speech.
Powell avoided any clear indications on the banks forward planning with just one short statement on the matter, ‘ the disinflationary process, the process of getting inflation down, has begun’.
Wednesday saw a rally for the greenback after hawkish comments from Fed governor Lisa Cook who said that ‘the bank are determined to bring inflation down to target, I think we are not done with raising interest rates’.
US employment data remained historically low on Thursday, further supporting the dollar.
Global market sentiment deteriorated towards the end of the week with the Dow Jones (0.17%) and Nasdaq 100 (2.47%) both down and the FTSE falling by 0.24%.
The markets haver again began to realign themselves to what the federal reserve are planning to do with rates.
There are some suggestions traders are starting to price out US rate cuts by the end of the year following the strong Nonfarm data.
Keep a close eye on US CPI data this week, it is estimated to clock in at 6.2% down from the previous 6.5%. Any variation could cause volatility on the currency markets.
Market data this week-
UK
Mon- Average Earnings data, claimant count and unemployment rate
Tues – CPI data & Retail price index
Fri- Retail sales
Eurozone
Tues GDP Q4
Weds Industrial production.
US
Tues- CPI data
Weds- Retail sales
Thurs- Building permits, Initial jobless claims, Philadelphia Fed manufacturing Survey
For further information or a free quote reach out to me directly Tom Holian [email protected]
