ECB Backtrack Boosts Pound

By Ashley Finill

As we continue into the third week of 2023, we are starting to see the currency market wake up so to speak as economic data releases from across the globe.  With data mostly absent over for the past few weeks due to festive period and new year, this week alone comes with a flurry of releases which are already stirring up market volatility. In the past 24 hours of trading Sterling has been given a much-needed boost gaining over a cent on the Euro proving a great buying opportunity to those of you looking to secure currency but may of late have been hesitant due to the lows seen over the past couple of weeks. This comes as Bloomberg reported yesterday that the European Central Bank may disappoint market expectation for its interest rate in March. The ECB had suggested last year that they could raise their interest rate by 1.5% by March ’23 but now reportedly looking set to back track on this hawkish stance. It is expected that the ECB will raise interest rate by 0.5% in both January and February but unlikely to be the same basis point hike in March as planned which markets may have already priced in, which is the likely reason the Euro dropped off in the afternoon of Tuesday’s trading.

UK Inflation falls but Sterling drops

This morning the ONS released the inflation figure in the UK which fell marginally from 10.7% last month to still a huge 10.5%. Sterling dropped off the Euro by around half a cent with a fall in inflation could see the Bank of England be more dovish outlook on raising interest rates. Although we have started to see prices fall at the pumps with petrol and diesel cheaper falling around 30% from last year but energy prices still soaring which is being felt by all as we enter the colder winter months, add to that food shopping remains high, the UK importing foods has been met with higher prices which have been passed onto the consumer. With the conflict in Ukraine still raging on it can be expected that prices for gas are unlikely to take a drastic fall with food from the region also hiking up prices. The Prime Minister has vowed to bring down inflation by as much as half to around 5% by later this year, a promise that will be kept in Kier Starmer’s back pocket as a change of leadership could be on the horizon come the General Election in 2024. Also, there will undoubtedly be further strikes across various sectors in the UK throughout this year. As we have already seen over the past few months with mass disruption to NHS services, train services and post as unions come to loggerheads with the government over pay rises not being handed out while inflation is still at record highs. On the back of the release of inflation this morning the Pound has dropped off by around half a cent still showing signs of how fragile it is to data releases and that gains can be short lived as we continue into a busy week of data releases.

Remaining data today and this week

A busy start to Wednesday’s trading and the data releases keeps coming. At 10am the Eurozone posts Harmonized index of consumer prices, the figure is expected to stay at last months reading of -0.3% but any change could see volatility in the Euro markets. Over to the US at 1.30pm as retail figures are set to be released which is expected to be a contraction from last months figure from -0.6% to -0.8%. Members of the Fed also speak throughout the afternoon and may give further insight on their interest rate plans for the year.  To Thursday, and overnight in Australia their unemployment rate will be released but is expected to remain the same as last month at 3.4%. In the afternoon at 1.30pm the US release, Building Permits, Housing Starts and Initial Jobless claims. Over to Friday and a busy end to the week as the UK release retail sale figures at 7am. The figure is predicted to come out at 0.4%, much better than the -0.4% posted in December. This is off the back of Xmas spending last month with an expectation that there would be an uptick in sales around the festive period. However, if this figure is far off the mark then Sterling could start off Friday morning on the backfoot. Finishing off the week Canada post retail sale figures which is also expected to show an improved figure from the previous reading of -0.4%.