Pound (GBP) Rocked by UK Economic Gloom
The Pound (GBP) suffered a bruising day yesterday after the International Monetary Fund (IMF) significantly downgraded its forecasts for the UK economy, predicting a recession this year.
More gloomy domestic headlines added to these fears. Company insolvencies in the UK are at a 14-year high, while a Bloomberg analysis argued that Brexit has cost the British economy £100bn a year in lost output.
Aside from the final manufacturing PMI, UK data is thin on the ground today. Worries about ‘Walkout Wednesday’, with the country facing a wave of strikes across multiple sectors, could dent Sterling.
Euro (EUR) Erratic amid Mixed Data and Shifting Mood
The Euro (EUR) traded without a clear directional bias yesterday. An unexpectedly large slump in German retail sales dented EUR early on, while a surprise expansion in the Eurozone economy in the fourth quarter of 2022 helped rekindle support for the single currency.
However, worries about the Russia-Ukraine crisis exerted some pressure on EUR. Meanwhile, an improving market mood later in the session saw the safer Euro slip against its riskier peers.
Today, the Eurozone’s flash CPI is in focus. Economists expect a slight cooldown from 9.2% to 9% this month. If inflation decelerates more than forecast, the common currency could tumble.
US Dollar (USD) Erases Gains as Risk Appetite Improves
The US Dollar (USD) jumped at the open of yesterday’s European session as a downbeat market mood saw traders flock to the safe-haven currency.
The ‘Greenback’ was unable to hold its gains, however. US markets opened higher, with the recovery in risk appetite weighing on USD exchange rates.
There’s some potentially high-impact US data today, but movement may be limited ahead of the Federal Reserve interest rate decision tonight. Markets expect the Fed to signal a dovish shift, however some economists believe the bank will signal further rate rises ahead. The former could dent USD, while the latter would likely boost it.
Canadian Dollar (CAD) Firms following GDP Data
The oil-linked Canadian Dollar (CAD) recovered from an initial dip yesterday, jumping higher thanks to an upbeat Canadian GDP reading and an uptick in WTI crude prices.
Looking ahead, Canada’s manufacturing PMI could trim CAD’s gains, as forecasters expect an ongoing contraction in factory activity.
Australian Dollar (AUD) Climbs on Positive PMI Result
The risk-sensitive Australian Dollar (AUD) strengthened overnight as a cheery mood and an upward revision to Australia’s final manufacturing PMI buoyed the ‘Aussie’.
New Zealand Dollar (NZD) Undermined by Rise in Jobless Rate
Meanwhile, the New Zealand Dollar (NZD) struggled to capitalise on the risk-positive tone in overnight trade. An unexpected rise in the New Zealand unemployment rate dented NZD.