FX Update 2 February 2023

The UK economy was given a GDP downgrade by the IMF on Tuesday. Previous estimates expected the UK economy to grow during 2023, however this has now been revised down to a 0.6% contraction.

The IMF blamed the cost-of-living crisis that continues to grip households, along with rising mortgage costs and increased taxes, but believes we are now ‘on the right track’.

The UK is the only advanced country expected to shrink this year, including sanctions-hit Russia which is forecast to have a positive GDP figure. We should get back on track in 2024 with the IMF predicting 0.9% growth for the UK.

Brexit wasn’t mentioned in this report but according to an analysis by Bloomberg Economics, it is costing the UK a staggering £100 billion per year. (There must have been a miscalculation on the famous red bus).

It is believed that the UK economy is 4% smaller than if we’d have remained in the EU, citing a lack of business investment, and a shortfall in workers.

On the data front, the EU had a surprise drop in inflation this morning. Their previous reading of 9.2% was expected to decrease to 9.0%, however it surprised on the downside at 8.5%, a significantly better number than expected. The main driver behind this was falling energy prices.

Even so, the ECB are predicted to hike rates today by 0.5% to 3.00% so it will be interesting to listen to the press conference afterwards to see if there’s a language shift towards lower future rates after these improved inflation numbers.

The Bank of England has made it’s move and increased rates by 0.5% increase to 4.00%. While the rate hike won’t have a huge impact on markets, the Monetary Policy Summary will be closely scrutinised by traders who will look for clues as to where the Bank of England may go with rates in the coming months.

The Federal Reserve was the first to act on rates last night. After their aggressive program of rate hikes last year, and with inflation under control (6.5% currently) compared to the UK and EU, a smaller sized hike was expected and delivered, adding 0.25% to their base rate and taking it to 4.75%. However, in the Press conference the FED warned of more increases to come.

The second half of January saw low levels of volatility on the main Foreign Exchange markets compared to what we’ve been used to. It is likely we see a large pick up on this front over the next few days following the Interest Rate announcements.

If you would like to place a limit order to target a rate of exchange and take advantage of potential after hours movements, please contact your dealer.



  • BOE Monetary Policy Report

  • MPC Votes

  • UK Official Bank Rate

  • UK Monetary Policy Summary

  • EU Main Refinancing Rate

  • EU Monetary Policy Statement

  • ECB Press Conference


  • US Non-Farm Employment Change

  • US Unemployment Rate

  • US ISM Services PMI

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