Key Points

• Sterling strengthens for its second-straight week.
• Sentiment towards Eurozone turns positive.
• Flash services and manufacturing for EU, UK and USA due this week.

GBP

Sterling rallied for a second straight week last week, shrugging off softer than expected retail sales figures, instead benefitting from further resilient jobs figures and a slow fading of price pressures cementing the likelihood of a 50bps BoE hike being delivered on 2nd February.

Broad-based USD weakness, as bets on a downshift in the Fed’s hiking pace mount, also helped cable to gain ground, with the pair now trading above the 50-week moving average for the first time since September 2021, giving the bulls a greater degree of near-term control.

Looking ahead, this week’s economic calendar is quieter than last, with just Tuesday’s ‘flash’ PMI figures on deck, set to show a further loss of economic momentum as 2023 got underway.

 

EUR

The common currency also gained ground last week, settling at its firmest since April 22, and also stringing together back-to-back gains, as sentiment towards the eurozone continues to turn more positive, and short positions continue to unwind.

Further hawkish ECB rhetoric also helped fuel further gains in the EUR, with President Lagarde and other Governing Council members rapidly denying a Bloomberg report that prior guidance of two 50bps hikes in Feb and Mar may be ditched.

This week, as with the broader theme, the eurozone economic calendar lacks any major releases, besides the aforementioned PMIs, which are set to show activity in the services sector expanded in the first weeks of the year for the first time since July.

 

USD

The greenback faced headwinds last week, as both December’s retail sales and industrial production figures pointed to a sharper and sooner-than-expected slowdown in economic activity.

This, coupled with a handful of dovish speakers, supports the position that the Fed will downshift to a 25bps hike at the February meeting, while likely also soon raising the question of how and when the tightening cycle may come to an end.

Looking ahead, activity figures will again be eyed during the week ahead, with the first estimate of Q4 GDP, as well as the latest PMI surveys, both due for release.

 

World News

The EU are examining the rebuild cost for Ukraine following the damage during the war, they are assessing feasibility of using assets seized from sanctioned Russians to fund the rebuild. It is estimated that the rebuild will cost over $100 billion, which may be taken from the nearly $300 billion seized in Russian assets. This comes as law makers believe assets should not only be frozen but confiscated also.

 

Large corporate companies are seeking to cut costs significantly, major tech firms Amazon, Microsoft and Google’s parent company Alphabet are all looking to cut up to 20,000 jobs each, as spending slows. This comes following Meta’s announcement to cut its workforce down by 13% in November. Tech site Layoffs, stated that nearly 194,000 industry employees have lost their jobs in the US since the beginning of 2022, which has been seen as a warning for the global economy as demand and spending have contracted.

 

Data Releases

Date	Region	Release	Previous	Consensus
Tuesday 24th January	EU	Flash Services and Manufacturing PMIs
Tuesday 24th January	UK	Flash Services and Manufacturing PMIs
Tuesday 24th January	US	Flash Services and Manufacturing PMIs
Wednesday 25th January	CA	Interest Rate decision	4.25%	4.50%
Thursday 26th January	US	Advance GDP q/q	3.20%	2.60%

Indices

Share Index	Prev. Close	Open
FTSE100	7770.59	7770.59
DAX	15033.56	15077.4
CAC40	6995.99	7014.91