Daily FX Update

The UK is expected to be the only economy to slide into recession this year, according to the IMF, caused by a fall in household spending from high energy prices, rising mortgage costs and increased taxes. They predict the economy will shrink 0.6% in 2023, the only contraction in G7. Industry groups are urging Rishi Sunak’s government to set out more ambitious plans to cut greenhouse gases by producing clean energy jobs, otherwise the UK risks being left behind the US and EUR, who are currently boosting incentives for green technology. It is reported by Bloomberg Economics that Brexit is costing the UK economy £100 billion a year – economists think the economy is 4% smaller than it might have been. The FTSE has dropped 0.38% since the open. GBP has retreated this morning to sit in the 1.2310 region after reaching highs of 1.2417 yesterday vs the USD. GBPEUR was mixed yesterday reaching highs of 1.1414 and lows of 1.1360 and sits now in the 1.1395 region as we print.

French GDP ticked marginally higher in Q4 2022, expanding 0.1% from the previous quarter, a touch above forecasts. The economy was held back by strikes and high energy costs in particular. Despite gaining in the final quarter, expectations are for a contraction of 0.2% in Q1 as household energy bill price caps are being raised by 15% this month and next. French inflation increased 7% in January to print just below the post-covid high seen in October and November last year. The acceleration not only adds to contraction concerns for the first three months of the year but supports recent rhetoric from the ECB that inflationary pressures still remain. EURUSD closed lower yesterday, as markets seem to be consolidating below 1.0850 ahead of this week’s Central Bank decisions. The pair reached a one week low during early trading on Tuesday, entering its fourth consecutive day of declines. 

As the Fed’s first meeting of 2023 begins today, it is widely expected that the FOMC will opt to downshift to a 0.25% hike. Jerome Powell may signal that the terminal rate remains at 5.25%. The market has begun building expectations of a rate-cut towards the end of 2023, this is one item Powell might dispel with his forward guidance. Last month. CPI, PPI and PCE all showed signs of moderation, however the Fed chair’s preferred metric, PCE Core Services, has hardly showed signs of slowing. Furthermore, the Employment Cost Index, which highlights wage pressures may keep Powell in a hawkish mood. It is expected to decelerate but remain too hot to alter any FOMC rhetoric.

The Biden administration is considering cutting Chinese tech firm, Huawei, from US suppliers in a bid to crackdown on the China’s Tech. Sales have been limited for the last four years, however, lawmakers are now exploring a complete ban on all sales to Huawei.

The dollar has gained almost 0.6% over the last three days, as risk-off action on equities bolsters the greenback. The NASDAQ closed 2% lower yesterday.

China’s latest PMI data shows the economy bouncing back from its covid setback. Official non-manufacturing PMI soared from 54.4 from 41.6, whilst manufacturing PMI rose from 47.0 to 50.1. This was despite the backdrop of the lunar new year, which highlights the resurgence of economic activity.

Weak industrial output is weighing on Japan’s recovery. Production fell on month-on-month basis for the third time in four months in December.

Yesterday, the Bank of Israel presented government ministers with a strategic program to accelerate economic growth. The plan hinged on six topics which were vital for a advancing the economy. USDILS advanced on gains made yesterday, trading above 3.47.

Italy Dec. Unemployment Rate

UK Dec. Mortgage Approvals

Euro-Area 4Q GDP

Italy 4Q GDP