Dollar slips further as risk appetite returns, UK public debt increases as inflation weighs on the nations balance sheet, EUR gains erased by disappointing PMI print.
Looking for some in-depth market insights? Check out our latest edition of SVB FX Navigator
January 24, 2023
Rates are not real time. Rates are today's indicative mid-market rates as of time of publishing, which may vary. Please contact SVB for a current quote.
GBP/USD 1.2394 GBP/EUR 1.1395 EUR/USD 1.0878 USD/CAD 1.3361 EUR/CHF 1.0010 EUR/SEK 11.0890 EUR/NOK 10.6691 EUR/DKK 7.4385 USD/ILS 3.3650 AUD/USD 0.7028 NZD/USD 0.6499 USD/SGD 1.3191 USD/JPY 130.13 USD/CNH 6.7826 USD/INR 81.6038 EUR/ILS 3.6603 GBP/ILS 4.1705 USD/ZAR 17.2629
The UK government sank deeper into debt in December as rising debt-interest payments and the cost of insulating consumers and businesses from the energy-price shock strained the public finances. The deficit now sits at £27.4 billion, almost triple the shortfall a year prior. Double-digit increases in receipts from VAT and income tax helped to partially offset a surge in interest costs – ¼ of government debt is linked to inflation.
Strikes in the UK are becoming more widespread, and while a long way from the scale seen in the 1970s, could be enough to tip the rounding on the headline GDP figures. Rishi Sunak is insisting the government had been "reasonable" in its public-sector pay offers yet the country’s unions, representing workers from a wide range of public-facing professions, conclude that they have no choice but to undertake industrial action as their calls for improved pay and working conditions go unanswered.
Flash PMI’s for the UK are expected to show a dip to 48.8 from 49.
Sterling was mixed yesterday reaching highs of 1.2448 before retreating to just above 1.2320 before London close. GBPUSD sits in the 1.24 region as we print. The FTSE has gained 0.18% since the London open.EUR
Hawkish rhetoric continued from the ECB yesterday, with policymaker Kazimir echoing recent comments that despite easing inflation, the pace of rate hikes needs to continue with “two more hikes by 50bps” needed. EURUSD hit a 9-month high on the comments to trade at 1.0919. President Christine Lagarde is due to make further comments today ahead of next week’s policy decision.
The Euro has erased its gains against the dollar this morning following disappointing German PMI data. The manufacturing index failed to meet expectations, printing its seventh consecutive month of contraction. The single currency slipped 0.25% on the release, despite services and composite indexes ticking slightly higher, as markets await the Euro Area release and the first glimpse of the state of the economy this year.USD
As we have now entered the blackout period ahead of the FOMC meeting next week, markets are heavily pricing a downshift to 0.25% hikes starting in February. The Fed’s terminal rate is seen peaking just shy of 5%.
A return of risk appetite in 2023 is driving the dollar’s decline, with the greenback losing 2.4% over the last month, and continues a longer more significant trend of reversal since October 2022.
Ten-year Treasury yields have declined more than 0.8% from early November to mid-January. This is likely attributed to market expectations of a less hawkish Fed and the risk of recession. As the Fed ends it tightening cycle the burden of controlling elevated inflation falls on hope for favourable supply shocks.ASIA/PACIFIC
A fast reopening has elevated China’s growth expectations, along with supportive policies from central and local government. Growth forecasts have improved to 5.8% in 2023 from 3% in 2022. Meanwhile, Joe Biden has confronted China with evidence that Chinese companies have sold non-lethal equipment to Russia for use. The support stops short of the more robust military aid that Russia has asked for.
Japan’s slightly stronger services PMI of 52.4 helped lift the composite PMI back into expansionary territory in January. The Index rose from 50.8 to 49.7ILS
A voting member of the Bank of Israel’s committee has stepped down, saying the country is in danger. Moshe Hazan who has been on the panel for more than five-years, was very critical of plans by Netanyahu’s government to overhaul the judiciary system. Following dollar weakness, USDILS has slipped lower into the 3.36 range.Data & Events
UK Jan. PMIs
US Jan. PMIs
Trading in financial instruments may involve a high degree of risk and may not be suitable for all investors. Trading in financial instruments can result in both loss and profit. Investors should carefully consider whether financial instruments suit their needs, financial resources and personal circumstances.
The information contained in this material is solely for informational purposes only and it is not and should not be construed as an offer or a solicitation of an offer to buy or sell any financial instruments and cannot be relied upon as a representation that any particular transaction necessarily could have been or can be effected at the stated prices. This material does not contrue advice.
For more analysis on FX markets or information regarding SVB's FX services:
0800 023 1440 from within the UK
+44 207 367 7880 from overseas
See all of SVB's latest FX information and commentary.
© 2023 SVB Financial Group. All rights reserved. SVB, SVB FINANCIAL GROUP, SILICON VALLEY BANK, MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group, used under license. Silicon Valley Bank is a member of the FDIC and the Federal Reserve System. Silicon Valley Bank is the California bank subsidiary of SVB Financial Group (Nasdaq: SIVB).
Silicon Valley Bank is registered in England and Wales at Alphabeta, 14-18 Finsbury Square, London EC2A 1BR, UK under No. FC029579. Silicon Valley Bank is authorised and regulated by the California Department of Business Oversight and the United States Federal Reserve Bank; authorised by the Prudential Regulation Authority with number 577295; and subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request. Silicon Valley Bank is a subsidiary of SVB Financial Group, a Delaware corporation and is an affiliate of SVB Financial Group UK Limited. SVB Financial Group UK Ltd is registered in England and Wales at Alphabeta, 14-18 Finsbury Square, London EC2A 1BR, UK under No. 5572575 and is authorised and regulated by the Financial Conduct Authority, with reference number 446159. SVB Financial Group and its subsidiary Silicon Valley Bank are members of the Federal Reserve System and Silicon Valley Bank is a member of the FDIC.
Your eligible deposits with Silicon Valley Bank UK are protected up to a total of £85,000 by the Financial Services Compensation Scheme, the UK's deposit guarantee scheme. Any deposits you hold above the limit are unlikely to be covered. Please click here for further information or visit http://www.fscs.org.uk. For more detailed information about coverage and limits, please review our FSCS Information Sheet at http://www.fscs.org.uk.
This material, including without limitation the statistical information herein, is provided for informational purposes only. The material is based in part upon information from third-party sources that we believe to be reliable, but which has not been independently verified by us and, as such, we do not represent that the information is accurate or complete. The information should not be viewed as tax, investment, legal or other advice nor is it to be relied on in making an investment or other decisions. You should obtain relevant and specific professional advice before making any investment decision. Nothing relating to the material should be construed as a solicitation or offer, or recommendation, to acquire or dispose of any investment or to engage in any other transaction.
Foreign exchange transactions can be highly risky, and losses may occur in short periods of time if there is an adverse movement of exchange rates. Exchange rates can be highly volatile and are impacted by numerous economic, political and social factors, as well as supply and demand and governmental intervention, control and adjustments. Investments in financial instruments carry significant risk, including the possible loss of the principal amount invested. Before entering any foreign exchange transaction, you should obtain advice from your own tax, financial, legal, accounting and other advisors, and only make investment decisions on the basis of your own objectives, experience and resources. Opinions expressed are our opinions as of the date of this content only. The material is based upon information which we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such.