Key Points
Last week saw UK, US and EU all raise interest rates.
Bank of England’s dovish tone contributed to Sterling weakness.
UK Monetary Policy Hearing and EU Economic forecasts due this week.
Market Report
GBP
Sterling struggled last week, notching its biggest one-week decline against the USD since the mini-budget turmoil last September, as the market took a rather dim view of the BoE’s dovish tone, and the greenback broadly strengthened.
The ‘Old Lady’ did little to help the quid last week, raising rates by 50bps as expected, though removing reference to ‘forceful’ further action, before Governor Bailey embarked on a dovish press conference, leading most observers to believe that this will be the penultimate hike of the cycle.
Looking ahead, a relatively busy calendar awaits once more this week, though is heavily back-loaded; BoE Governor Bailey’s Commons Testimony on Thursday will be closely watched for any further dovish guidance before attention turns to the first estimate of Q4 GDP on Friday.
EUR
The common currency also faced headwinds last week, snapping a 3-week winning run against the USD, and rather quickly paring a move north of 1.10 for the first time in 9 months.
Thursday’s ECB decision panned out largely as expected, a 50bps hike, along with guidance that another 50bps rise will come in March, however markets were rather unconvinced by a rather confusing press conference from President Lagarde, in addition to the EUR facing headwinds from the broadly stronger USD.
This week’s calendar provides little in the way of significant data releases from the eurozone, hence attention will again likely fall on any ECB speakers who may pop up on the wires in an attempt to reinforce last week’s hawkish message.
USD
The greenback was ‘king of the hill’ in the G10 FX world last week, rallying over 1% against a basket of peers, with almost all the move coming on Friday, as traders digested a blowout payrolls report – employment rose 517k, while unemployment hit a 54-year low – as well as a surprisingly strong ISM services PMI print.
This led to a broad re-assessment of positions placed after Wednesday’s FOMC decision, which delivered a 25bps hike, along with a repetition of Chair Powell’s commonly heard ‘higher for longer’ rhetoric; now that data is starting to point towards a soft landing, Powell’s hawkish remarks may hold more credibility in the market’s mind.
Chair Powell’s remarks are again likely to be in focus this week, with a speech scheduled for Tuesday, on what is an otherwise barren economic docket, lacking top-tier data releases.
World News
The FTSE 100 has reached an all time high of 7905, beating the previous high of 7903.5 in 2018. This comes as central banks have indicated that interest rate hikes will be slowing down, as they believe inflation has peaked. Boosting the FTSE is the growth of US jobs in their latest announcement and China’s easing of Covid restrictions. Furthermore, the Bank of England have presented a more optimistic economic forecast, despite previous fears of a deep recession.
A suspected Chinese spy balloon has been shot down after spending several days in US airspace. Chinese officials insisted it was a meteorological and scientific research device that had been blown off course, however increased US suspicion led to the decision to shoot it down by an F-22 fighter aircraft. Following this China has threatened further action and has described it as a “serious overreaction”.
Data Releases
| Date | Region | Release | Previous | Consensus |
| Tuesday 7th February | AU | Interest Rate Decision | 3.10% | 3.35% |
| Tuesday 7th February | US | Federal Chair Powell Speaks | ||
| Thursday 9th February | UK | Monetary Policy Report Hearings | ||
| Thursday 9th February | EU | EU Economic Forecasts | ||
| Friday 10th February | UK | GDP m/m | 0.10% | -0.30% |
Indices
| Share Index | Prev. Close | Open |
| FTSE100 | 7901.8 | 7901.8 |
| DAX | 15476.43 | 15367.04 |
| CAC40 | 7233.94 | 7181.97 |