Daily FX Update

Rishi Sunak meets with the European Commission President, Ursula von der Leyen today, for the final talks ahead of the expected announcement of a post-Brexit trade settlement that would soften the barriers that have emerged from the Northern Ireland Protocol and end a long dispute between the two sides. Although the British PM is expected to seal an agreement with Brussels, he continues to face backlash internally from Eurosceptic Conservative MPs and the Irish DUP. This deal will not only restore crumbling government in Northern Ireland but will further improve the UK’s relations with the EU.

The economic outlook for the UK has improved, with analysts forecasting a smaller contraction due to the drop in energy prices and improved consumer sentiment.

GBPUSD has a choppy week, reaching highs of 1.2147 and lows on Friday of 1.1938. Sterling stays subdued this morning sitting in the 1.1960 region due to USD strength following the release of US PCE inflation data which showed an uptick in inflation in January. The FTSE opened in the green up 0.73% as we print.

BOE’s Tenreyro spoke on Friday stating that UK inflation is expected to fall and that financial conditions have tightened. She further stated that she sees risk of overtightening rates in the UK.

EURUSD is trading flat this morning around 1.0550 at time of writing. The pair lost ground last week, losing 1.25% as investors digested mixed data releases. The decline was the largest weekly loss for the euro since September. Focus will turn to consumer and business sentiment figures due this morning, where forecasts expect to see an uplift.

Ursula von der Leyen and Rishi Sunak are due to meet today in a bid to find an agreement over the Northern Ireland protocol. Officials close to the matter have said that “this is the closest” the two regions have been to reaching a formal agreement.

European stocks rallied this morning with the Stoxx 600 index up 1% as all sectors opened the week in the green. 

Last Friday’s PCE deflator provided markets with one more upside inflation surprise, following the narrative of all price gauges last month. The headline PCE figure rose 0.6% month on month higher than the consensus. More worrisome for US equities was that both core inflation and “supercore” (core services excl. housing) both accelerated. These upward revisions have bucked the disinflationary trend, and could potentially keep inflation sustained throughout the year, and above the Fed’s December forecast. Off the back of this the dollar found renewed strength on Friday as interest rate expectations continue to find fresh highs, the dollar spot index gained from 104.6 early Friday to 105.2.

January’s durable-goods orders will be dented by a sharp drop-off in aircraft after Boeing received it largest monthly gross order the previous month. Orders are expected to decline by 4% versus 5.6% growth the month prior.

Biden warned China about providing lethal aid to Russia, stating that the US would respond if it did. Meanwhile, China’s Parliament, the National People Congress is meeting to hear how the country’s top leaders plan to restart the country’s growth engine. The NPC will review the governments performance, and policy goals.

Some commentators see the shekel’s reaction to last week’s interest rise, as an increasingly negative sign. Despite the Bank of Israel surprising with a larger size rate hike the Shekel lost value, which may highlight a significant loss of confidence in the Israeli economy.

USDILS remains just below yearly highs at the 3.67 handle, as dollar strength and shekel weakness continue to stir volatility into the cross.

BOE’s Broadbent speaks

Eurozone Jan. M3 Money Supply

Eurozone Consumer/Economic Confidence