UK: Weekly FX Market Update 3 January

GBP

• The BoE MPC had a 3-way split vote last month, resulting in a hike of 0.5% to 3.5%.

• UK investors will look at Friday’s Halifax HPI for signs of weakness, against a backdrop of Bloomberg analysts forecasting a 10% decline in UK house prices for 2023.

• GBPUSD is still trading above 1.2000, but has dropped by 3% within the last 3 weeks – will this level last?

The last significant data point for the pound in 2022 was the Bank of England interest rate decision on 16th December. 5 voted to hike 0.5%, 1 voted for a 0.75% hike and 2 voted for no change in rates – could this signal that further rate hikes will be harder to achieve?

EUR

• Eurozone inflation is released on Friday, currently expected to drop from 10.1% to 9.6%.

• EURUSD strengthened 12% in Q4 2022. How long can this continue with a US interest rate premium of 2%?

• Did the Eurozone shopper have a good Christmas? Retail sales data on Friday will tell us.

• Energy prices have fallen since last years highs and reserves are nearly full. However, Russian supplies are not available to replenish gas used this winter. When will this affect the Eurozone economy?

USD

• With the release of FOMC meeting minutes, the market will be updated on the Federal Reserve’s interest rate intentions this Wednesday evening. Is there a chance of lower US interest rates in 2023?

• US jobs data is released on Friday. Can the US economy add another 200k new jobs in December?

• US CPI slumped to 7.1% in November. Will the market keep this in mind and sell the US$ again?

Events for the weekend ahead:

Wed Jan 4

09:00 EUR Final Services PMI

19:00 USD FOMC Meeting Minutes

Thu Jan 5

09:30 GBP Final Services PMI

13:30 USD Trade Balance

Fri Jan 6

07:00 GBP Halifax HPI

10:00 EUR CPI Flash Estimate/Retail Sales

13:30 USD Average Hourly Earnings/Unemployment Rate/non-Farm Employment Change