Pound (GBP) Trends Broadly Lower on Grim Economic Forecast
GBP/EUR: Up from €1.12 to €1.13
GBP/USD: Unchanged at $1.20
The Pound (GBP) traded sideways against the majority of its peers on Monday, as the international New Year’s public holiday rendered currency markets quiet.
On Tuesday, Sterling appeal was dented by comments from the International Monetary Fund (IMF) and the Financial Times. The former declared that 2023 would bring a major worldwide recession while the latter stressed the UK would be hit harder than most other nations by high inflation.
Midweek, the Pound was able to recoup some of its losses as UK Prime Minister Rishi Sunak gave an optimistic speech promising to tackle inflation, national debt and NHS waiting times among other things. Nevertheless, critics complained he’d skirted important issues such as Brexit.
On Thursday, the UK’s finalised services PMI printed below expectations – highlighting businesses concerns about waning customer demand amid the cost-of-living crisis.
Headwinds were compounded at the end of the week by further signs of an economy in decline. The UK’s construction release marked the third PMI of the week to fall into contraction territory as industrial action hits the public sector, highlighting growing dissatisfaction with low rates of pay.
Euro (EUR) Dented by Weaker-Than-Expected Inflation Release
EUR/GBP: Unchanged at £0.88
EUR/USD: Unchanged at $1.06
The Euro (EUR) likewise experienced little movement against its peers at the beginning of the week. Monday’s finalised manufacturing PMI had minimal impact given it printed as forecast by economists.
On Tuesday, German inflation eased by more than expected, dampening the appeal of the single currency. Rate hike bets for the European Central Bank (ECB) dwindled as economists speculated that aggressive monetary policy tightening may no longer be necessary.
Midweek, a risk-on market mood weighed upon the comparatively safe-haven Euro, while the currency came under additional pressure from easing inflation in the business sector according to the bloc’s services PMI. The prospect of a hawkish ECB appeared even less likely to EUR investors.
On Thursday, Germany’s trade surplus increased above expectations and EUR firmed against the Pound. The Euro subsequently reversed its gains, however, as construction activity fell in the bloc’s largest economy and a decline in Eurozone producer price inflation dampened spirits.
By the end of the week, the shared currency reached a multi-week low in several exchange rates, with greater-than-forecast retail sales unable to recoup losses. Weaker-than-expected inflation in the Eurozone as a whole depressed EUR against its peers, alongside plummeting German factory orders.
US Dollar (USD) Wavers as Economic Data Prints Mixed
USD/GBP: Unchanged at £0.82
USD/EUR: Unchanged at €0.93
The US Dollar (USD) traded in a mixed range against its peers through last week’s session. Economic data printed inconsistently according to expectations, while fluctuating market sentiment attracted and withdrew support from USD alternately.
The ‘Greenback’ found some strength at the beginning of the week in spite of a lack of data, as economic uncertainty drew investment toward the risk-off currency.
Nevertheless, December’s weaker-than-expected finalised manufacturing PMI undermined USD strength somewhat and the currency lost some of its early gains. A modest decline in US Treasury bond yields further sapped support alongside growing risk-on sentiment.
Midweek, the US Dollar encountered mixed trading stimuli as a bullish market mood exerted pressure while greater-than-expected job openings buoyed the currency. Meanwhile, the latest meeting minutes from the Federal Open Market Committee (FOMC) inspired limited optimism as they indicated support for further interest rate hikes but cautioned that a flexible approach was necessary.
On Thursday, the US trade balance improved beyond forecasts, lending USD some support alongside news of more private sector payrolls being added than expected in December. Gains were relinquished at the end of the week, however, as the ISM non-manufacturing PMI printed at a shock contraction.