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Pound slides as UK’s outlook remains bleak.
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US Dollar fluctuates at the start of 2023.
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Euro drops as cooler German inflation points to slower ECB rate hikes.
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Strong US payroll figures to boost USD?
GBP/EUR Exchange Rate: Pound Buoyed by Improving Market Mood.
The Pound Euro (GBP/EUR) exchange rate rose over the past seven days. The Pound (GBP) benefitted from a return of global risk appetite.
Aiding Sterling’s ascent was an upwards revision to the December’s finalised UK manufacturing PMI. The figures helped buoy expectations for a milder recession than previously feared.
Ongoing industrial action across the UK capped the Pound’s gains, however. Post workers, border control officials, and rail sector staff all initiated fresh strike action over the past week. Hospitality sector heads stated that the strikes cost businesses £1.5bn in December alone.
The UK’s ‘winter of discontent’ could continue to limit the Pound’s upside potential over the coming week. The threat of coordinated strike action later in the year may weigh on Sterling sentiment.
GBP/USD Exchange Rate: 2023 Recession to Put UK Bottom of G10 League Table
Trade in the Pound US Dollar (GBP/USD) was mixed over the past week. A risk-on market mood helped the Pound (GBP) to climb despite downbeat forecasts for the UK economy.
The country’s retail sector signalled that it struggled throughout 2022, with spending down 0.8% on the previous year. The sector also reported that roughly 47 shops closed every day in 2022.
Warnings that the UK would face a deeper recession than forecast in 2023 also kept pressure on the Pound last week. Experts predicted that the country’s recession would place it significantly below all other G10 economies in terms of growth. Analysts at Goldman Sachs predict a 1.3% contraction in GDP this year.
Looking to the week ahead for the Pound, the final reading of December’s services PMI could push GBP higher if it confirms the vital sector avoided a contraction. A forecast slowdown in retail sales growth in December’s could also see the Pound slip if Tuesday’s figures print as forecast.
USD/GBP Exchange Rate: USD Sees Dramatic Swings at the Start of 2023
The US Dollar Pound (USD/GBP) exchange rate fluctuated over the past seven days. The US Dollar (USD) initially struggled amid a return of risk appetite that kept pressure on the safe haven ‘Greenback’.
USD found some support from jobless claims figures on Thursday, however. The latest data pointed to a still-tight labour market, strengthening bets on further interest rate hikes from the Federal Reserve.
The start of 2023 has seen volatility in the US Dollar increase dramatically. USD exchange rates spiked as much as 1% on the first day of trade, before a correction on Wednesday saw the ‘Greenback’ reverse the majority of these gains.
The week ahead will see several significant data releases for the US Dollar. The latest FOMC minutes could help to boost USD if they signal a hawkish forward path from the Fed on Wednesday. The latest non farm payrolls on Friday could also bolster the US Dollar if they indicate a persistently tight labour market.
EUR/USD Exchange Rate: German Inflation Cools, Points to Slower ECB Rate Hike Path
The Euro US Dollar (EUR/USD) exchange rate ticked lower over the past seven days. A healthy risk appetite saw the Euro (EUR) drop over the past week. Developments in the Russia-Ukraine conflict also pushed EUR lower.
Downbeat data releases for the Eurozone also prompted losses in the Euro. Below forecast German inflation on Tuesday saw the single currency slip.
The data provoked reduced market bets on aggressive interest rate hikes from the European Central Bank (ECB). Additionally, German unemployment figures remained stable which pointed to a cooler labour market in the trading bloc’s largest member.
Looking ahead for the Euro, a predicted slip in Eurozone inflation on Friday could see EUR slide amid a further pullback in ECB rate hike bets. A forecast recovery in November’s retail sales could help to stem potential losses, however.