Daily FX Update

Optimism in British households amid the cost-of-living crisis rebounded in February, with signs of inflation cooling - the GfK consumer confidence indicator jumped 7 points to -38, the biggest increase since 2021.   

 The pound remains stable around the 1.2030 mark following the release although still remains down 0.07% on the week. 

 BOE policy maker Mann dictated on Thursday that the central bank should not consider the rate peak for now, as inflation is still in double-digits, despite already pushing rates to 4%. Mann stated that although hikes had been old by historic standards, they weren't perhaps aggressive enough. She further notes that the BOE has not appropriately factored in economic shocks from Covid-19 and the war, the low starting point of interest rates, and the public reaction to the economic shift. 

 Around 1.5mn UK local government employees have been offered a wage rise worth over  20 per cent over two years, for the lowest paid, adding to the pressure on MPs to make more generous offers to NHS and teaching staff. The offer covers care workers, school teaching assistants and refuse workers. 

Euro Area core inflation hit a record for January, with core price gains hitting 5.3%. The headline number continued its rapid decline, driven by lower energy prices. Economists estimate energy contributions to prices are down 2.3% since October. The core gauge adds more clout to ECB hawks, likely cementing the central banks plans to raise rates by a further 50bps next month. ECB member Nagel commented following the release, that “significant rate hikes may be needed beyond March”.  

German GDP fell more than expected in Q4 last year, with the economy contracting 0.4% against estimates of a 0.2% decline, as households felt the strain of inflation and energy price pressures. Consumer confidence also printed weaker than forecast at -30.5. According to economists, these two components, along with falling manufacturing PMIs, all point towards a downturn in the German economy in the first quarter this year.  

EURUSD has dipped below 1.0600 for the first time in 7-weeks, as risk appetite continues to wane. The Stoxx 50 trades 0.2% higher on open. 

The US labour market phenomenon, coupled with continuously low jobless claims could propel FOMC members forward onto more rate hikes through the year. The intensity of layoffs remains low, and high consumer spending, and retail sales ensure that the unemployed are quickly reabsorbed into the workforce. Jobless claims declined this week to 192,000 from 195,000 the month prior. 

To add to this, the Federal Reserve’s preferred inflation gauge is set to release today. The consensus is that the PCE deflator will moderate slightly to 4.3% YoY from 4.4% the month before. If core inflation continues to accelerate, this combined with an extremely robust labour market could provide the perfect storm for Federal Reserve tightening, which may dissipate any immediate hopes of a rate pause. 

The yen gained slightly after BOJ nominee Kazuo Ueda said that the BOJ could begin toward normalising policy, including an end to JCB buying. Ueda spoke at parliament after data showing Japan’s CPI sped up to 4.3% in January, the fastest since 1981. 

China warned the US’s top diplomat, as Consul General Gregory May made comments which were deemed as interference.  

Israel’s central bank called an extraordinary meeting of the Financial Stability committee amid market volatility and the depreciation of the shekel. The shekel has declined by more than 6% in the past month, as political turmoil has weighed on market confidence in the Israeli economy.  

USDILS has rebounded upward after briefly trading below 3.6 yesterday. Currently trades around the 3.65 level, up 0.6% intraday.  

Spain Jan PPI 

US PCE Deflator 

Personal Income