Daily FX Update

Halifax reported that across the UK, property values increased by 1.1% month on month in February, accelerating from a 0.2% increase in January with the average house price sitting at £285,476. Average prices in London have fallen by 0.9% over the past year largely effected by the large proportion of flats.

UK construction activity beat investor expectations in February to register its highest growth rate in nine months as an improving global outlook boosted commercial projects. Construction order books expanded for the first time since November 2022 whilst input price increases were the slowest since November 2020. Builders also continued to hire workers.

Retail sales in February were boosted despite high inflation. Like-for-like sales climbed 4.9% from a year ago after a 2.7% increase in February 2022 according to data from KPMG, well above the 12-month average of 1.6%. Figures were helped along by sales of fragrance and jewelry around Valentine’s Day.
GBP gained early this morning reaching highs of 1.1291 vs EUR and 1.2065 vs the USD, however, has since declined sharply. The FTSE opens in the red down 0.07% as we print.

The Euro has had a positive start to the week, trading 0.4% higher against the Dollar to reach two-week highs just below 1.0700. The single currency jumped on further hawkish sentiment from the ECB, with member Holzmann suggesting 50bp hikes may be needed at the next four meetings. Traders have bought forward bets on interest rates reaching 4% to September, a more aggressive stance than markets had initially expected. As of one month ago, money markets had priced in rates to peak at 3.5% in July before pausing.

Protests continue in France today, with trains suspended, schools closed, and oil refineries blocked, in response to the government’s pension reform plans. Today is the sixth day of strikes and protests since mid-January, with police estimating 1.2 million people taking part. 

Retail sales in the Euro Area continued to disappoint, contracting 2.3% YoY, more than the 1.8% expected, as consumers take a more cautious approach to spending. Monthly sales added 0.3%, although significantly missed forecasts of a 1% gain. European shares wiped out gains following the data and expectations of further hikes, closing the London session flat. 

With January’s jobless data robust across the board, this has supported ideas that the US economy was reaccelerating despite the Fed’s aggressive monetary tightening. This has bolstered “no-landing” optimists who believe that on its current economic trajectory the US economy will skirt recession altogether. Despite the robust jobs market, it is estimated that households have 6-12 months of spending runway built from excess savings. If this is exhausted a downturn may be difficult to avoid.

The dollar steadied ahead of Jerome Powell’s two-day testimony and Friday’s monthly payrolls data.

Polls for the 2024 presidential election show that a Biden vs Trump re-run would be extremely tight with polling close. Trump remains the favourite for the republican nomination.

China’s exports have declined in the first two months of 2023 and may indicate that external demand is dragging on the economy’s recovery. Exports fell 6.8% YoY in the first two months of 2023.

Cooler inflation gives the Bank of Thailand scope to pause its tightening cycle, with the headline CPI measure on track to return to the target band by mid-year. The BOT is expected to hold its interest rate at 1.5%.

The shekel gained by over 2% on hopes of a political compromise on the government’s judicial plans, the TA-35 also gained as much as 1.6%.  This came as Israeli president Isaac Herzog said that politicians were close to a compromise.

Fed’s Powell – Senate Banking Panel Testimony