GBP
Sterling notched a modest back-to-back weekly loss against the dollar last week, with the market looking unfavourably on the BoE’s relatively dovish 50bps rate hike, where two policymakers even voted to keep rates on hold, raising the chances of an end to the hiking cycle coming as soon as February.
Nevertheless, the pound’s near-term weakness may turn into out-performance in 2023 if, as most expect, the FX market moves away from the interest rate differential theme which has dominated this year, and instead turns its focus to trading relative growth differentials.
This week, as with most other DM economies, the economic calendar is rather barren, with trading volumes also likely to be significantly thinner than usual in the run up to the Christmas break.
EUR
Despite the most hawkish message most can remember from ECB President Lagarde, including the teeing up of at least two further 50bps hikes in the new year, the EUR failed to gain much traction on the week, with price retreating rapidly from the 6-month highs hit on Thursday.
This may be because markets are focused on the negative side effects of the ECB pursuing such an aggressive strategy in the midst of recession; namely, the likelihood that said hikes will deepen this winter’s economic slowdown, while also raising fragmentation risks within the bloc, hence the sharp widening of the BTP/Bund spread.
Looking ahead, in common with the relatively quiet theme elsewhere, this week’s data docket is devoid of anything interesting, with only Monday’s German sentiment surveys of any note whatsoever.
USD
Last week’s price action demonstrated that Fed Chair Powell’s credibility with investors is sorely lacking, with Powell’s message that the tightening cycle still ‘has a ways to go’ and a hawkish dot plot indicating the fed funds rate being north of 5% at the end of next year both falling on deaf ears.
Consequently, the greenback traded noticeably weaker against a basket of peers, with price remaining south of the 200-day moving average, and the DXY even hitting 6-month lows as Powell spoke.
This week, Friday’s PCE data highlights the calendar, being another release that is likely to show the economy being passed the peak of inflation, though it is worth keeping an eye on year-end funding pressures which, in the absence of other notable events, and amid thin trading conditions, could have an outsized impact in propelling the buck to the upside.
World News
Following 9 drones being shot down in Kyiv, reports are suggesting Ukraine may be planning their next move against the Russian’s, as they are expecting an attack from the North. Last time Ukrainian forces were quiet for a couple of days they launched a counter attach to recapture Kherson. Putin heads to Belarus, with fears that he may be applying pressure to allies to send troops to Ukraine.
The High Court has ruled the Rwanda deportation plan as lawful, under the deal the UK plans to send migrants to Rwanda where their asylum plans would be processed. Britain has paid Rwanda 120 million pounds ($146 million), this is to deter people trafficking by gangs, who risk the lives of many by trying to cross the channel.
Data Releases
| Date | Region | Release | Previous | Consensus |
| Tuesday 20th December | JPN | Monetary Policy Statement | ||
| Tuesday 20th December | CAD | Retail Sales m/m | -0.50% | 1.50% |
| Wednesday 21st December | CAD | CPI m/m | 0.70% | -0.10% |
| Thursday 22nd December | USD | Final GDP q/q | 2.90% | 2.90% |
| Friday 23rd December | CAD | GDP m/m | 0.10% | 0.10% |
| Share Index | Prev. Close | Open |
| FTSE100 | 7332.12 | 7332.12 |
| DAX | 13893.07 | 13934.75 |
| CAC40 | 6452.63 | 6470.93 |