Daily FX Update

The UK PM has arrived in Belfast to sell his post-Brexit trade deal for Northern Ireland to business leaders. In yesterday's talks with EU Commission President Ursula von der Leyen, Sunak outlined the so-called Windsor framework, which he states will address unionists' concerns by slashing red tape, ensure EU law has only a small and limited role, and will provide the Stormont assembly great power over new EU rules. The DUP recognizes progress has been made, however they continue have some concerns. Initial response further seems to have appeased some of the hard-lined euro-sceptics in the Conservative party. 

According to Zoopla, UK homebuyers are benefiting as sellers are cutting the asking prices to get deals done. This month the average seller discounted by 4.5%, the biggest discount in more than 5 years.

Research from Kantar suggests that the cost of food and drink is rising at a rate of 17.1% YoY. This is the highest rate since their records begun in 2008.

GBP gained yesterday and has spiked further on the UK open, trading up 1.17% so far this week, as news broke that a Northern Ireland Brexit deal has been agreed, improving the optimism for cross-border trade between the nations.

Traders have increased bets for further rate hikes from the ECB, following French and Spanish inflation figures this morning. The release proved hotter than expected, with the YoY prints at 6.2% and 6.1% respectively. For the first time, money markets have fully priced in a 4% peak to be reached by this time next year, up from expectations of 3.5% at the start of 2023. The Euro rebounded off 7-week lows following the release, trading just above 1.0600 against the dollar.

Economic sentiment for the Euro zone printed worse than forecast at 99.7, against 102.5 expectations. Consumer confidence was in line with forecasts at -19.  Natural gas prices across the bloc are headed for a monthly decline of over 15%, down nearly 40% YTD, as households and companies continue to cut fuel use during a milder winter.

Research into the inflation expectations, has shown that markets are typically slow to adjust to new inflation trends, and are quick to assume that inflation will return towards the Fed’s 2% target. The research shows that cases where markets overestimate the stickiness of inflation are incredibly rare across the period since 2003.

The Fed’s Vice chair, Lael Brainard, is set to leave the FOMC for a role in Biden’s administration. This removes one of the FOMC’s leading doves from the committee and could shake up the Fed’s policy moving forward. The two leading candidates to replace Brainard, are found at different sides existing hawk-dove balance and could shape Fed policy going forward.

Australian retail sales rebounded for January, rising 7.5% from a year ago. Despite rising initially on the release, gains were limited as US dollar strength overshadowed the data. NZDUSD also fell 0.3%, despite business confidence rising to -43.3 from -52 last month. 

Emerging market stocks declined for a third day, as investors digest the possibilities of continued rate hikes in the developed world. The MSCi Emerging markets index extended February's losses to 6.7%, whilst the MSCI currency index traded flat.

USDJPY trades at YTD highs following overnight comments from the Bank of Japan Governor. Ueda remarked that the benefits of the current stimulus outweigh the impact, as well as reiterating the need for ultra loose policy during uncertain economic times. Comments reconfirmed the stance that the BoJ has no intention to move away from current easing.

Hong Kong will stop requiring masks in public, ending one the longest covid mandates after 945 days of enforcement.

The Shekel has continued its decline this morning, losing 40bps against the dollar following reports yesterday that central bank intervention may be required should the currency continue to fall. Reports suggest that the Bank of Israel may begin to sell foreign-exchange reserves for the first time, as a result of the ongoing depreciation of the currency.

USDILS has lost 6.5% so far in February, with the pair trading just above 3.67 at time of writing.