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FX Update – 18 January 2023

Before a round up of the last week I wanted to share some predictions from a panel of investment banks on where their traders expect to see the Pound over the course of this year. While these numbers must be taken with a pinch of salt, if they fall outside of your costed levels, it is worth discussing forward purchasing to lock in today’s rates.This week has been the opposite, with a large number of data releases from the UK, the US, and the EU.

Fx table

Last week, the UK GDP figures surprised on the upside showing 0.1% of economic growth for November. Despite this positive number, the Pound didn’t attract much support, continuing the theme of relatively low volatility that we’ve had so far this year. 

On Thursday, the US released their inflation number, showing price growth reducing from 7.1% to 6.5% y/y. This shows the Federal Reserve’s aggressive action with US interest rates is starting to pay dividends from an inflation perspective.

This morning in the UK, our inflation numbers also fell, but at a far slower rate than across the pond. UK headline CPI eased to 10.5% as expected from a previous level of 10.7%. Although the figure is positive, it would take years to return to the Bank of England’s target of 2% if we maintained this pace. 

Breaking the figure down, there was a sharp drop in fuel prices last month with petrol dropping 8p/litre and diesel by 16p/litre. However, food prices are continuing to struggle and over the course of 2022 went up by a massive 16.8%. Sterling maintained a rally that started yesterday, and GBP/EUR currently trades at 1.1380 and GBP/USD at 1.2350.

The drop in prices should mean that inflation has peaked, however, the Bank of England will most likely have to continue its path of hikes for the short to medium term to bring inflation anywhere near it’s intended target.

Calendar

Tuesday 24th

  • EUR Services PMI
  • EUR Manufacturing PMI
  • UK Services PMI
  • UK Manufacturing PMI
  • US Services PMI
  • US Manufacturing PMI
 

Thursday 26th

  • US Advance GDP q/q

 

Friday 27th

  • US Core PCE Price Index m

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