Daily FX Update

UK factory price inflation eases to its slowest pace in almost a year, further evidence that pipeline inflationary pressures are easing. Input prices rose 16.5% in December down from a 24.6% peak in June. Widespread falls in raw material costs suggests that some of the supply chain bottlenecks that appeared after the pandemic have begun to ease.

The pound has retreated off Monday’s highs, sitting in the 1.2325 region as we print down 0.63% vs the USD this week. A similar story can be told vs the EUR, as sterling drops 0.76% so far this week. The FTSE has gained 0.13% since the open.

Some economists are now arguing that it is touch and go whether there will be a recession in the UK in 2023. The downturn is now looking to be very shallow – inflation is now expected to drop faster than previously expected due to the fall in energy prices, whilst tight monetary policy may keep growth below trend.

Rishi Sunak is set to face more criticism at PMQ’s today as he resists calls to sack his party Chairman Zahawi, following questions around how he handled a tax dispute when he was chancellor.

European stocks have paused their recent rally as investors begin to digest earnings reports and the impact of slowing growth on corporate results. Euro Stoxx 50 futures are down 0.3% this morning as the outlook for tech stocks continues to decline.

EURUSD continues to trade near the upper end of its recent range, just below 1.0900 this morning as hawkish comments from ECB policymakers continue to prop up the single currency. Strong PMI readings from the Eurozone also contributed to the upward trend, with all sectors printing above previous figures and expectations, as declining energy prices and the reopening in China likely boosted sentiment. German Ifo Business confidence has risen on last month, although printed slightly below expectations, signaling a technical recession may be avoided.

New reports suggest the European Commission is looking to bring framework legislation for the introduction of the digital euro by May 2023. Comments from European lawmakers following the publication, highlighted skepticism on the proposed bill.

The US and Germany will provide tanks to Ukraine, finally overcoming a disagreement which has elevated tensions across the NATO alliance. Both M1 Abrams and Leopards will be sent by the US and Germany. An influx of high-tech equipment is needed to ensure the Ukrainians can withstand a much-anticipated spring offensive.

The US government looks set to challenge Big Tech once again. The Justice department is set to sue Google’s parent company, Alphabet Inc. over alleged monopolisation of the digital advertising market.

The dollar trades relatively flat on yesterday. Yesterdays PMI’s beat the consensus and edged close to expansionary territory.

Japan’s government have reduced their economic assessment for the first time in 11 months. Although highlighting some areas of moderate improvement, the report shows a downgrade in its view of exports and imports as the country braces for the impact of a global economic slowdown. USDJPY continues to trade around 130.00, up 0.3% on the week so far.

Emerging market currencies were mixed as investors await corporate earnings and further clues into US monetary policy. MYR continues to outperform its peers as Malaysia remains to have the largest trade exposure to China. 

Bank of Israel Governor Amir Yaron, met with PM Netanyahu to discuss the economy and the challenges it faces. Yaron submitted an economic strategy which includes policy recommendations in a variety of areas. USDILS trades -0.2% lower intraday.

US MBA Mortgage Apps.

Riksbank Climate Report

US Crude Oil inventories.