Key Points
GBP weakened at the back end of last week, due to dovish tone from the Bank of England
Flash Manufacturing and Services PMIs due for EU, UK and US on Tuesday.
US GDP expecting no change from Advance reading.
Market Update
GBP
The pound faced headwinds last week, though cable again managed to hold above 1.20, as the market continued to price more hawkish outlooks from both the FOMC and ECB, while the Bank of England continued recent dovish rhetoric, signalling that an end to the hiking cycle is likely to come next month, while other G10 central banks look set to continue raising rates into the spring.
Better-than-expected labour market data, which showed unemployment remaining at cycle lows 3.7% and regular pay rising at its fastest pace on record outside of the pandemic failed to lift the quid, with cooler than expected inflation data, albeit with CPI continuing to print north of 10% YoY, rapidly quashing any speculation that a wage-price spiral may be about to develop.
Looking ahead, this week brings a rather uninspiring data calendar, besides Tuesday’s ‘flash’ PMI prints, which should show the economy continuing to contract, just at a slower pace than seen in January.
EUR
The common currency also had something of a quiet week last week, with a lack of major volatility seen in both EUR/USD and in the crosses, again owing to a relatively quiet economic calendar.
Nevertheless, continued hawkish rhetoric from ECB officials did lead to a continued sell-off in eurozone government debt markets, with core-periphery spreads continuing to widen, and the market now pricing a 3.75% terminal rate in the bloc for the first time this cycle.
This week, the data calendar is just as quiet; once again, Tuesday’s ‘flash’ PMIs will prove the highlight for the bloc, with consumer confidence and a final read on January’s CPI print the only other noteworthy releases.
USD
Hotter than expected inflation and retail sales figures sparked a significant rally in the greenback last week, with the market – for what feels like the first time – beginning to believe and price in the Fed’s ‘higher for longer’ rhetoric that has been ignored for so long, allowing the buck to notch a third weekly gain against a basket of peers for the first time since last August, and trade above the 50-day moving average for the first time since November.
Higher Treasury yields, including the 2-year touching 4.6%, and the 10-year hitting its highest since early-January, are also helping to support the USD’s run higher, as is a renewed round of hawkish Fed speak, including a couple of FOMC voters touting the prospect of a return to 50bps hikes.
This week, minutes from the February FOMC are the marquee event on what is an otherwise quiet economic calendar, though Friday’s PCE inflation figures will also garner some attention, especially after hotter than expected PPI & CPI last week.
World News
Oil and gas giants BP and Shell unveiled mega earning last week, announcing record high annual profits of £23bn and £32bn, doubling the previous year’s total. These record earnings come after soaring fuel and energy prices, following the invasion of Ukraine. However, Bp and Shell have pledged to use profits to invest in greener technology as it moves to renewable energy sources.
Foreign ministers are expected to meet for an EU-wide ammunition deal in Brussels on Monday. The plan would work by placing large ammunition orders on behalf of several states in order to speed up production and encourage investment in increasing production capacity. However, this would not solve the current shortage in Ukraine as members of states have been called upon to use their current stock to support Ukraine. This comes as the US have warned that China is considering supplying weapons and ammunition to Russia, which emphasises the need to support Ukraine in ammunition supplies.
Data Releases
| Date | Region | Release | Previous | Consensus |
| Tuesday 21st February | UK | Flash Services and Manufacturing PMIs | ||
| Tuesday 21st February | EU | Flash Services and Manufacturing PMIs | ||
| Tuesday 21st February | US | Flash Services and Manufacturing PMIs | ||
| Wednesday 22nd February | US | FOMC Meeting Minutes | ||
| Thursday 23rd February | US | Prelim GDP q/q | 2.90% | 2.90% |
Indices
| Share Index | Prev. Close | Open |
| FTSE100 | 8004.36 | 8004.36 |
| DAX | 15482 | 15524.16 |
| CAC40 | 7347.12 | 7361.21 |