UK retail sales fail to meet expectations, declining 5.8% to cap the worst year on record. The euro rallied against the dollar as Lagarde and other policy members reaffirmed hawkish stance.
January 20, 2023
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GBP/USD 1.2359 GBP/EUR 1.1401 EUR/USD 1.0839 USD/CAD 1.3466 EUR/CHF 0.9964 EUR/SEK 11.1852 EUR/NOK 10.7251 EUR/DKK 7.4394 USD/ILS 3.4085 AUD/USD 0.6941 NZD/USD 0.6431 USD/SGD 1.3220 USD/JPY 129.17 USD/CNH 6.7798 USD/INR 81.1400 EUR/ILS 3.6940 GBP/ILS 4.2100 USD/ZAR 17.2509
UK retail sales came in worse than estimated last month, capping the worst year on record after a cost-of-living squeeze forced consumers to pay more for fewer goods. Sales dipped 5.8% YoY, despite this being the first unrestricted Christmas since 2019, the sharpest fall since records began. Consensus was for a 4% dip.
GfK’s monthly consumer confidence index, also slipped to minus 45, down three points from last month.
BOE Governor Andrew Bailey said that two months of declines in the UK’s headline inflation rate is “the beginning of a sign that a corner has been turned,” and the economy may be getting past the worst in a cost-of-living squeeze. He further suggested that market interest rate expectations are now more closely aligned with the BOE’s thinking on where borrowing costs peak – Investors are betting on further 1% rise, with the 50bp hike coming in April.
GBPUSD continued its upward trajectory sitting in the 1.2358 region up 1.23% this week. Sterling's gains vs EUR have been dampened however the pair still trades up 0.85% this week.EUR
Speaking in Davos yesterday, Christine Lagarde reaffirmed the ECBs stance that the Central Bank will “stay the course” in order to get inflation back down to the 2% target level. Despite some policy makers calling for smaller hikes, in line with the slow down in consumer price gains, Governing council member Knot yesterday remarked that rate rises will likely come “at a constant pace of multiple 50bps hikes”. This, along with the release of Decembers monetary policy meeting minutes, which showe a large proportion of members favoured a 75bps hike last month, suggest some investors may be underestimating the Central Banks plans. The Euro gained on the more hawkish rhetoric, adding 0.5% against the Dollar throughout Thursday.
Euro implied volatility over the next year is down to 8%, from a peak of 11% on the outbreak of the Russia-Ukraine War, the fastest ever decline in pace of volatility. Investors are calling for a reversal, as the ECB continue to push back against market positioning that central banks will be slowing the speed of rate hikes.USD
The latest Philadelphia Fed survey continued to indicate challenging economic conditions for manufacturing. The gauge rose to -8.9 in Jan from -13.7 the prior month surpassing the consensus around a rise to -11. This supports the Fed’s Beige Book report from the previous day, which highlighted weakening activity.
Two top Fed officials have said that high interest rates were needed despite signs that inflation is cooling. They said that policy will need to be restrictive for “some time” to return prices to their target range. The dollar remains largely unchanged on yesterday.
The US announces further military hardware for Ukraine. This follows a western initiative to supply Ukraine with high quality military equipment before a widely expected spring offensive by the RussiansASIA/PACIFIC
Japanese Core CPI jumped to 4% from 3.7% in November, it was the fastest pace in 41 years. As these price gains are cost-driven and not demand-driven it is unlikely higher core CPI will drive the BoJ to exit its stimulus program. Consequently, the yen has slipped against the dollar by 0.4%.
As China emerges from the aftermath of its covid-zero policy pivot, it’s appearing the heaviest impact is over, with activity returning according to high frequency data. Celebrations for the lunar new year may temporarily spike infections however it is expected the that the impact of covid headwinds will diminish through the year.ILSInvestors in Israel’s powerful tech sector have expressed concerns at Netanyahu’s plans to give politicians greater influence on the appointment of Supreme Court Justices, and to limit the court oversight. The concern is that this new policy may impact the country’s liberal democracy and business friendly environment. USDILS trades 0.2% lower intraday.Data & Events
UK retail sales
ECB Chief Lagarde speaks at WEF
Fed’s Harker Speaks
US Home Sales
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