UK: Weekly FX Market Update 13 March

GBP

• UK GDP was released on Friday for January, growing by 0.3%, and better than the 0.1% expected.

• GBPUSD dropped to a 2-month low during the week before the GDP release.

• All eyes in the UK now turn to Wednesday for Chancellor Hunt’s budget.

Will UK Chancellor Hunt deliver a ‘feel good’ budget on Wednesday? High profile policy areas include whether the energy subsidies for the population will continue (a factor impacting UK inflation).  And will he help UK business bear the increase in UK corporation tax to 25%, by assisting in other areas?

EUR

• Q4 revised GDP for the Eurozone remained at zero last week. Is the Eurozone economy slowing down whilst the ECB quickly hikes rates?

• EURUSD was pressured last week, as Fed Chair Powell confirmed his determination to control ‘sticky’ US inflation.

• The market expects a 0.5% rate hike on Thursday, but how hawkish will the accompanying message from the ECB be?

• Will ECB’s policymaker Holzmann win the day with his suggestion of hiking rates by 0.5% in March, May, June and July?

USD

• The Fed has a very delicate balancing act to perform, something FOMC Chair Powell spoke on during his testimony to the US Senate banking committee:

  • ‘’We need to continue to tighten".

  • "We don't think we need a significant increase in the unemployment rate, but we will need softening in labour market to get to 2%."

• The main goal of the FOMC remains returning inflation to 2% as quickly as possible.

• Non-Farm Payrolls posted a bullish 311,000 new jobs in February. However, the unemployment rate rose to 3.6% from last month’s 3.4%.

• US CPI is to be released on Tuesday. Will it support the hawkish stance of the Fed?

At the end of last week Silicon Valley Bank went bust. A few other US banks saw huge declines in their share price as they were thought to have similar problems to SVB. Can the US Government successfully underwrite the deposits on account? What will the knock-on effect be to the wider US economy?

Events for the weekend ahead:

Mon Mar 13

00:01 EUR German Bundesbank President Nagel Speaks

18:05 GBP MPC Dhingra Speaks

Tue Mar 14

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

12:30 USD CPI

Wed Mar 15

00:01 CNY Retail Sales

12:30 GBP Annual Budget

12:30 USD Retail Sales

Thu Mar 16

00:30 AUD Unemployment Rate

12:30 USD Philly Fed Manufacturing Index

13:15 EUR ECB Press Conference

Fri Mar 17

10:00 EUR Final CPI

13:15 USD Industrial Production

14:00 USD Prelim UoM Consumer Sentiment/Inflation Expectations