GBP
Sterling gained ground against the dollar last week, rising back above 1.22 and close to 1-month highs, with the quid benefitting from a broad improvement in risk appetite, coupled with broad-based USD weakness.
The move came despite a lack of major UK data releases or headlines, though the market did cheer the likelihood of the UK having avoided a recession in 2022, with GDP growing by a modest +0.1% MoM in November.
Looking ahead, a data deluge awaits market participants this week, with focus falling on the latest labour market (Tues), inflation (Weds), and retail sales (Fri) figures, ahead of an expected 50bps hike from the BoE on 2nd February.
EUR
The common currency also benefitted from a softer USD last week, rising to 7-month highs against the buck, north of 1.08, notching a 4th weekly advance in the last 5.
Market participants have taken on a distinctly more positive view of the EUR recently, with incoming economic data beating expectations by the biggest margin in 18 months, and recession forecasts being torn up by most major investment banks.
This week’s economic docket is rather on the quiet side, with little in the way of top-tier releases, though further positive news flow on the China and energy fronts could propel the EUR higher still.
USD
Amid clear signs that inflation has peaked, and that price pressures continue to abate, Fed policy expectations have become substantially more dovish, with markets now pricing a 25bps move at both the Feb and Mar meetings, down from the 50bps expected at the former in 2022.
Consequently, Treasury yields have sunk across the curve, and the dollar has faced stiff headwinds, with the buck falling to its lowest level in over half a year against a basket of peers last week.
This week, Fedspeak will likely be in focus once again, however with risk appetite remaining firm, and 2023’s general investment theme of ‘sell US, buy RoW’ seemingly playing out, USD gains may be hard to come by.
World News
China is experiencing surges in Covid 19 cases across the country, following the recent decision to re-open its borders and relax its strict zero covid measures only a matter of weeks ago. There have been reports of over 60,000 deaths since December, however this is expected to be much higher. The rest of the world has responded by implementing covid travel restriction and regulation to those travelling from China.
The UK economy unexpectedly grew in November, beating expectations that the economy was going to contract. The economy expanded by 0.1%, supported by demand in the tech sector and the hospitality sector during the World Cup. The UK has seen a slowdown is growth since October, due to strike action in rail transport, postal work and warehousing which has had a drag on economic growth, this has continued throughout December and the beginning for January.
Data Releases
| Date | Region | Release | Previous | Consensus |
| Monday 16th January | GBP | BoE’s Governor Bailey speech | ||
| Tuesday 17th January | CAD | BoC Consumer Price Index Core | 5.8% | 6.1% |
| Wednesday 18th January | GBP | Consumer Price Index (YoY)(Dec) | 10.7% | 10.6% |
| Thursday 19th January | USD | Retail Sales | 0.6% |
0.1% |
|
Share Index |
Prev. Close | Open |
| FTSE100 | 7844.07 |
7844.07 |
| DAX | 15086.52 | 15112.05 |
| CAC40 | 7023.5 | 7036.48 |