Daily FX Update

UK car production fell 9.8% to around 775,000 cars in 2022, the worst year in more than six decades as the global chip shortage and the closing of key factories hammered output. Automakers expect output to increase this year as bottlenecks ease.

According to the Institute of Chartered Accountants, business confidence has dropped to global financial crisis lows amid persistently high inflation and fears that the country is already in recession – the index came in at -23.4, down from -16.9 in November.

For the first time since August, money-market wagers show a quarter point rate cut is fully priced in by the year-end. Markets still expect the base rate to peak at around 4.5% this summer, however market’s believe the BOE may readjust after a string of economic data pointed to growth stalling and inflation easing.

The ONS reported that economic growth potential in the UK has been damaged due to chronic worker shortages and weak productivity which will leave the Chancellor Hunt with less headroom for giveaways in his March budget.

Sterling made a recovery from Tuesday’s lows and sits in the 1.2415 region as we print. GBPEUR also recovered and trades above 1.1365. FTSE trades flat since the start of the week.

The euro is on track to complete its longest winning streak since mid-2020 should it close the day higher against the US Dollar. The pair currently trades up at 1.0920 after gaining 40bps during yesterdays European session. Reports suggesting the end of the Feds rate hike cycle is in sight weighed on the Dollar, whilst lower energy prices and strong PMI data have supported the Euro. Investors suggest 1.1000 may be in sight, should the USD come under further selling pressure and hawkish rhetoric from the ECB continue. Policymaker Vasle yesterday added to the recent flurry of remarks, reconfirming that a 50bps hike may be appropriate at the next two meetings. Bundesbank President Nagel also warned against complacency on inflation and supported the course set out by Lagarde.

European stocks climbed following two days of losses, poised for the best January since 2015, amid risk on sentiment. The Stoxx Europe 600 gained 0.5% with financial services, retail and tech leading the way.  

US GDP is expected to show an expansion of 2.6% in the 4Q 2022, boosted by robust consumer spending on services, even as goods spending pulled back. Despite worsening economic conditions US households have continued to utilise their excess savings accrued during the pandemic, however, reports in recent weeks highlight that these savings are nearly exhausted.

The dollar slipped further yesterday by over 0.3%, as improving risk appetite continues to weaken the greenback.

US natural gas futures extended declines below $3 amid mild winter weather. Gas for February delivery traded as low as $2.919. US politicians have used the swings in gas prices as a political football, with the Biden administration claiming the fall in gas prices is directly due to white house policy.

Tokyo’s core inflation likely ticked up in Jan due to the knock-on effects of higher import prices, the city’s core CPI is anticipated to rise 4.1%. The outlook is tilted to the downside for CPI moving forward. Energy subsidies and the yen’s appreciation may reduce inflation in the medium-term.

The Bank of Thailand is yet to show any hesitation to pause its tightening, with the policy rate now 0.25% above the pre-pandemic level. Currently, demand pressures are mounting, which could force the BOT to raise further.

Australia’s strong Q4 CPI reading is unlikely to phase the Reserve Bank of Australia. The economy’s inflationary pulse has historically reflected temporary shocks, which will likely see the RBA raise rates once more in February before pausing.

Israel’s sizeable high-tech sector has become the most vociferous against Justice Minister’s Yariv Levin judicial reform proposals. There has been a notable uptake in open letters and social media from some of Israel’s most significant tech leaders. USDILS trades 0.2% higher intraday.

Italy Jan Consumer/Manufacturing Confidence

US Jobless Claims

US GDP

US Durable Goods

US New Home Sales