IFX Market Report: Friday 17th February 2023

Despite recent positive data in the UK including inflation and GDP figures, the pound has fallen over the past couple of days as investors seek currencies they believe will have the stronger ‘interest’ yield going forward.

UK inflation data earlier this week showed that inflation seems to be falling faster than expected, posting a current figure of 10.1%, down from 10.5% the previous month. The data means that it is less likely that the BOE will need to hike rates as much as previously thought, where at one point analysts predicted rates would need to be at 6% plus to counter inflation. The base rate now stands at 4.0% with analysts predicting that it will not exceed 4.5%, unless wages continue to increase and pressure inflation. This is unlikely however as the pressure on the economy is likely to cause unemployment which in term leads to increased competition for jobs which dampens wage demands.

The work and pensions secretary, Mel Stride, has conceded that Brexit delivered a blow to investment decisions in the UK. He stated yesterday ‘’I think if you have a situation where you create frictions between yourself and your major trading partners, I think you have to accept that that will have an impact’’.

The resilience of the US economy is pushing demand for the US to hike interest rates as recent strong manufacturing, retail sales, job gains and homebuilder sentiment which rose for the first time in a year, weigh on inflation figures. Some US FED policymakers are calling for a 0.5% hike at the next meeting, and many believe that rates won't be reduced back down towards the end of this year as was expected.

ECB president Lagarde confirmed that the Eurozone will likely increase their interest rates by 0.5% in March, as inflation pressures still loom, but despite the economy showing signs of improvement.

Better than expected retail figures in the UK which showed a 0.5% rise compared to 0.3% expected, did little to boost the pound this morning.

GBPUSD is down around 2% over the past few days against the dollar and resides around 1.1930, whilst GBPEUR sits at 1.1210. EURUSD resides at 1.0640

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