UK: Weekly FX Market Update 13 February

GBP

• After the previous week of declines the pound spent most of last week trying to recover ground.

• GDP for December flatlined, allowing the UK economy to just avoid slipping into recession.

• Preliminary Business Investment increased by 4.8% on a quarterly basis.

• Bank of England Economist Pill warned about over-steering (hiking too high) on interest rates

• Bank of England Governor Bailey repeated that he expected inflation ‘to come down rapidly’ in 2023.

A busy data week for the UK behind on Tuesday when the UK Employment data is released, followed by the House Price Index on Wednesday and Retail Sales on Friday. 

However, the biggest data point is likely to be on Wednesday when CPI is released. Will it produce a big decline from January’s 10.5% as BoE Governor Bailey expects? If so, does it follow that the BoE is at the end of its rate hiking policy? 

EUR

• ECB President Lagarde has most of her Board members continuing to prepare the market for more rate hikes as she wants to ‘stay the course’ on inflation.

• Banque de France Villeroy declares that France will avoid a recession.

• EURUSD ignored recent good news last week and declined by 1% as the market worried about a strong US jobs market. The Swedish & Norwegian central banks wound up their hawkish rhetoric, supporting their currencies at the Euros expense.

• Eurozone Flash GDP is released on Tuesday followed by Current Account data on Friday. Can the good news continue for the Eurozone?

USD

• Investors are caught between the idea that US interest rates may be cut at the end of this year & a strong labour market, which reduces the chances of rate cuts.

• Retail Sales are released on Wednesday and the Producer Price Index follows on Thursday. Will these data releases dovetail with falling inflation?

The big event this week, which could give investors direction on the above dilemma, is US CPI which is released on Tuesday. Headline CPI is expected to gain 6.2% whilst Core CPI is expected to gain 0.4%.

Will inflation continue to decline or will it start acting in a ‘sticky’ manner and encourage further USD buying ahead of potential further rate hikes from the Federal Reserve?

Events for the weekend ahead:

Tue Feb 14

07:00 GBP Claimant Count Change/Average Earnings/Unemployment Rate

10:00 EUR Flash GDP QoQ

13:30 USD CPI

19:05 USD FOMC Williams Speaks

Wed Feb 15

07:00 GBP CPI

09:30 GBP HPI

13:30 USD Retail Sales

Thu Feb 16

00:30 AUD Employment Change

13:30 USD PPI

22:30 AUD RBA Gov Lowe Speaks

Fri Feb 17

07:00 GBP Retail Sales

09:00 EUR Current Account