UK: Weekly FX Market Update 22 January

CalendarJanuary 22, 2024
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GBP
  • UK CPI was stronger than expected and reduced market expectations of an early interest rate cut from the Bank of England.

  • However, it wasn’t all good news for the pound as average earnings were softer than expected, and retail sales were the weakest since January 2021.

  • Could the UK economy slip into recession because of this economic weakness?

  • Flash Services PMI is the highlight this week for UK data, set for release on Wednesday. Last month’s Services PMI was relatively strong at 52.7. Will Services PMI encourage sterling buyers?

EUR
  • EURUSD declined last week as US yields increased.

  • This was despite ECB Governing Council member Vasle saying on ECB rate cuts, that it was ‘absolutely premature to expect first rate cuts at the beginning of Q2’.

  • ECB President Lagarde supported this sentiment by saying that the ECB ‘has to be reserved on interest rate cuts’.

  • Potentially important data points for the Euro are Flash Manufacturing & Services PMI, which are released on Wednesday.

  • The headline act for the week is the ECB interest rate decision on Thursday. Bloomberg analysts currently expect no change, with all eyes and ears turning to Mme Lagarde’s press conference.

USD
  • Market analysts forecast 6 rate cuts from the Federal Reserve in 2024. However, the FOMC itself only indicates a possible 3 rate cuts.

  • Could the US dollar strengthen as the US economy continues to perform and forces the market to realign with the Fed?

  • To avoid public accusations of favouritism, could the Fed cut rates early in the year and then hold steady going into H2 2024 when the US election is held?

  • US Advance GDP is released on Thursday. Could it again show an above trend performing US economy? The Fed’s favoured inflation gauge PCE, is announced on Friday. Could it show strength, like CPI, and encourage further US dollar strength?


Main events for this week:

Mon Jan 22

No Top Tier data

Tue Jan 23

00:30 JPY BoJ Interest rate decision

05:30 JPY BoJ Press conference.

15:00 EUR Consumer confidence

21:45 NZD CPI

Wed Jan 24

09:00 EUR Flash Manufacturing & Services PMI

09:30 GBP Flash Manufacturing & Services PMI

11:00 CBI Industrial Order expectations

14:45 CAD Bank of Canada Interest rate decision/Statement

14:45 USD Flash Manufacturing & Services PMI

16:00 CAD Bank of Canada Press conference

Thu Jan 25

09:00 EUR German IFO Business climate

13:15 EUR ECB Interest rate decision

13:30 USD Advance GDP/ Durable goods/Goods trade balance

13:45 EUR ECB Press conference

15:00 USD New home sales

Fri Jan 26

13:30 USD Core Personal Consumption Expenditure Index (PCE)

Author

Trevor Charsley

Trevor Charsley

Senior Market Strategist

Trevor has over 25 years' trading and sales experience. He produces regular market and technical analysis as well as help with the structure and management of FX hedging policies. Trevor is often listed among the top "currency forecaster on Bloomberg".

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