FX Update 23 March 2023

UK Prices On The Up Again!

Things were looking positive for the UK last week as Chancellor Hunt’s budget was well received and the Pound continued to rally of recent lows. The Chancellor’s first budget focussed on getting people back into work and boosting business investment. Alongside this, 

he Office for Budget Responsibility has predicted the UK will avoid recession this year but believes the economy will contract by 0.2% overall. We are expected to return to growth in 2024, with 1.8% predicted, moving up to 2.5% in 2025. Inflation is expected to fall to 2.9% this year, although that figure has already been thrown into doubt given the most recent data release.

Yesterday morning, UK inflation data was released and gave the market quite a shock. Inflation was expected to fall back into single digits (9.9%) for the first time since October 2022, but missed on the upside with a reading of 10.4%. Core inflation also rose sharply to 6.2% from 5.8%. 

The Office For National Statistics blamed increasing prices in restaurants, hotels, food, non-alcoholic drinks, plus clothing and footwear for this higher-than-expected figure. Although inflation is expected to drop sharply in the coming months due to lower energy prices, it will still be a red flag for the Bank of England when looking at the UK’s interest rate trajectory.

The Federal Reserve hiked rates last night taking the US Bank Rate to 5.00%. Although this move was expected, there had been calls from some major investment banks to pause at 4.75% due to the recent banking crisis in America. In their policy statement the FOMC cited the labour market continues to perform well, and that inflation remains elevated. 

They believe that the banking system is sound and resilient but admitted that credit conditions for households and businesses may tighten and create downside risks for economic activity soon. The USD sold off on this news with the Dollar Index falling by 0.8%. Overall, the FOMC announcement was less hawkish than previous statements, and suggests that this interest rate hiking cycle is coming towards its end.

The UK followed suit today at midday, increasing the base rate to 4.25%. The Bank of England may be coming towards the peak of their rate hikes given their belief that UK inflation will fall significantly in the coming months. This hike of 25 bps is smaller than the 4 previous increases of either 50 or 75bps. However, to finally end this cycle, the data will need to back up the predictions on inflation. This hike came as no surprise to the market, so the Pound has remained stable at 1.23 vs the USD and just over 1.13 against the Euro.




  • UK Retail Sales m/m
  • UK Flash Services PMI
  • UK Flash Manufacturing PMI
  • EUR Flash Services PMI
  • EUR Flash Manufacturing PMI
  • US Flash Services PMI
  • US Flash Manufacturing PMI



  • BoE Governor Bailey Speaks



  • US Consumer Confidence


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