UK: Weekly FX Market Update 20 February
The relatively divergent paths of UK and US CPI encouraged weakness in GBPUSD last week. The weakness, however, was not sustained and price closed the week where it opened.
UK CPI was released at 10.1%, lower than expected, adding weight to the Bank of England being towards the peak of its rate hiking cycle.
Meanwhile, UK average earnings were higher than expected.
In the background PM Sunak is possibly renegotiating the N.Ireland protocol. Can the market continue to ignore this good news should it come to fruition?
If the markets focus is on the potentially ‘higher for longer’ US interest rates, is this the reasoning behind JP Morgan’s GBPUSD forecast of 1.1500 for December 2023?
The ECB hawks were out in force last week .
ECB’s Schnabel said ‘Under all scenarios, a 0.5% rate hike in March is very much needed’.
Following these comments, Bloomberg reported a peak interest rate of 3.75% for the eurozone, 1.25% higher than the current 2.5%.
The European Union now expects the economy to avoid recession and grow 0.8% in 2023.
Will the important ZEW economic sentiment, released this week, confirm this new positive view on the Eurozone economy?
Can Eurozone final CPI on Thursday make the hawks screech even more loudly?
The US$ had a torrid time in Q4 2022. Losing 11% of its value as inflation fell & China re-opened.
The market had been pricing in a 0.25% rate cut by the Fed in Q3 2022.
However, as inflation has been higher than expected in January, and as FOMC members warn of higher rates, the US$ Index has gained 4% in February so far.
The US economy is printing strong data, with 500k jobs added in January and Retail sales jumping the highest in nearly two years in January.
Can the US$ recovery continue, supported by a growing economy & the expectation of higher interest rates?
Events for the weekend ahead:
Mon Feb 20
US All Day holiday (Presidents day)
CAD All day Holiday
Tue Feb 21
07:00 GBP UK Public sector Net Borrowing
09:00 EUR Flash Services/Manufacturing PMI
09:30 GBP Flash Services/Manufacturing PMI
10:00 EUR German ZEW Economic Sentiment
13:30 CAD CPI/Retail sales
14:45 USD Flash Services/Manufacturing PMI
Wed Feb 22
00:30 AUD Wage price Index
09:00 EUR German IFO Business Climate
19:00 USD FOMC Meeting minutes
Thu Feb 23
10:00 EUR Final CPI
10:45 GBP MPC Cunliffe Speaks
13:30 USD Prelim GDP
Fri Feb 24
13:30 USD Core Personal Consumption Expenditure Price Index
15:00 USD Revised UoM Inflation Expectations