Daily FX Update

According to a recent poll, 2/3's of UK businesses believe that the government’s plans to disentangle British and EU law will cause further uncertainty and will not increase economic growth. This comes as the Retained EU Law bill is debated in the House of Lords today - under this bill, any EU -regulation that is not converted into UK law by the end of 2023 will be revoked. The bill is well supported by Eurosceptic Tory MPs focusing on deregulation. However, the effect of the bill remains unclear.

 The slowdown in the capital is the root cause for the UK's weak productivity according to research published this morning, showing that London has lagged behind the rest of the country and other global cities in the last 15 years. UK GDP would be 54 billion pounds higher, if it had grown in line with cities such as Paris, New York, and Brussels since the global financial crisis.

Cable has dipped this morning, sitting in the 1.1970 region as we print up 0.23% this week. The pound is under renewed pressure as the BOE Bailey stated yesterday that there were no guarantee rates will rise further. His speech considerably reduced traders’ bets on a 25bp hike at this month’s meeting. GBPEUR dipped also, sitting in the 1.1260 region, after reaching highs above 1.1420 following positive Brexit deal news earlier in the week.

BOE chief economist Pill will speak on the 2023 economic outlook. Market's will be listening in to how PMIs and a Brexit deal on the cards effects the BOE's policy goals and outlook.

This week’s inflation surprises for Germany, France and Spain suggest that the euro-area reading may not fall as was previously the consensus forecast. The gains across the continent have largely been due to food and energy costs, however it is anticipated that core inflation may also edge higher. This may keep ECB policymakers on edge, with interest rates now expected to rise to 3.5% by June.

Meanwhile, Italy might dip into a mild recession with the first quarter GDP of 2023 expected to contract. The slowdown is driven by slowing construction as the government withdraws incentives from the industry, alongside the impact of higher rates on an Italian economy that has a higher debt ratio than many of its EU peers.

Some mild USD strength this morning, has erased some of the EURUSD gains made yesterday, as the cross narrowly missed the 1.07 handle. EURUSD currently trades just above the 1.06 handle.

US Manufacturing PMI marginally increased to 47.7 from 47.4 the month prior, driven by an uptick in new orders. The ISM print could highlight that the pace of disinflation is slowing in goods sectors, as the gauge gained despite demand indicators remaining in contractionary territory and supply conditions easing.

Despite the most aggressive Fed tightening cycle in a generation, recent price signals have done little to calm Bostic. He said that interest rates would need to rise between 5%-5.25%. Meanwhile, whilst discussing next month’s meeting, Kashkari was quoted that he is “open-minded” as to whether a 0.25% or 0.5% hike is required.

There are some potential early signs of cooling in the US labour market, two large online recruiting companies, reported that the number of job postings has declined on their sites more than suggested in Labour department reports.

The NASDAQ and S&P500 slipped further through yesterday, by 0.5% and 0.65% respectively. The dollar remains mixed despite making early gains through the Asian session.

Pakistani inflation rose to a record high in February; however, it is anticipated to worsen as the rupee’s depreciation, energy price increases and tax hikes weigh on the economy. CPI climbed 31.5% YoY in February, which was broadly inline with the consensus forecast of 30.9%. With inflation expected to accelerate, current forecasts are for a 2% hike by the central bank on the Mar 2^nd meeting.

China’s upcoming NPC meeting may negatively impact investor confidence, as a wave of pro-market policymakers are set to be replaced with politicians closer to President Xi Jinping, with less market credentials.

As protest intensify the three ratings agencies have warned about the negative impacts the planned Judicial overhaul, and its political fallout could have on the nations credit tier. A drop in Israel’s credit rating would not only impact borrowing costs but may limit fundraising opportunities in Israel’s thriving tech sector.

Bank of Israel Governor Amir Yaron has tried to calm markets and business leaders throughout the crisis, however warned last week that if the political issue isn’t dealt with it could quickly become an economic one.

Italy Feb. CPI

BOE Decision Maker Panel Survey

Euro-Area Feb. CPI

ECB Account of Feb meeting.

US Initial Jobless Claims