UK: Weekly FX Market Update 27 February

GBP

• The pound had a mixed performance last week. Slipping 1% against the US$ but gaining 1% against the euro .

• Good news was delivered by Citigroup, updating their UK inflation forecast, now expect UK inflation to fall to 2.3% in 9 months time.

• MPC member Mann spoke in hawkish terms that monetary policy has been ‘insufficiently aggressive’.

• MPC member Broadbent talks on Monday, whilst Pill and Mann speak on Tuesday.

Prime Minister Sunak is working hard to agree a deal with the EU to agree a new Northern Ireland protocol. If successful, Berenberg forecast that £100 billion of investment could be unleashed in the UK.

Can the PM make progress with the EU, giving the pound it’s first ‘political boost’ since he steadied the ship last October?

EUR

• EURUSD has fallen 4% in February, this is despite the expectation that the ECB is preparing the market for a 0.5% rate hike in March.

• Eurozone Headline CPI is still high, growing 8.6% annually, with core CPI 5.3% annually.

Eurozone CPI First Estimate is released on Thursday. Will it drop in line with the fall in gas prices?

The day before, Bundesbank President Nagel speaks, will he maintain his hawkish tones?

USD

• February has been a strong month for the US economy with positive jobs and Retail sales data.

• Inflation was higher than expected in February, with CPI at 6.4% annually exceeding the 6.2% forecast. Personal Consumption Expenditure was at 5.4%, against a forecast of 5%.

• US inflation (Personal Consumption Expenditure) exceeded expectations, with Bloomberg consequently reporting that the market has now priced in additional rate hikes.

• This has encouraged US$ strength, with the US$ index jumping 4.5% so far this month.

The Fed is in a tricky situation as inflation rebounds higher, just as they were expected to hit their terminal rate.

Will the Fed hike rates in March, May and June as the market now expects? Can the USD continue to strengthen as it has throughout February?

Events for the weekend ahead:

Mon Feb 27

09:00 GBP MPC Broadbent Speaks

Tue Feb 28

04:10 JPY BoJ Gov Designate Ueda

12:15 GBP MPC Pill

12:30 GBP MPC Mann

13:30 CAD GDP

15:00 USD CB Consumer Confidence

19:30 USD FOMC Goolsbee Speaks

Wed Mar 1

00:30 AUD CPI/GDP

10:00 EUR BuBa President Nagel Speaks

Thu Mar 2

10:00 EUR CPI Flash Estimate

Fri Mar 3

00:00 USD Fed Monetary Policy Report

09:00 EUR Final Services PMI

09:30 GBP Final Services PMI

14:45 USD Final Services PMI

15:00 USD ISM Services PMI