IFX Market Report: Tuesday 23rd May 2023

Britain's Prime Minister, Rishi Sunak, has disclosed that the United Kingdom will receive a Japanese investment exceeding $22 billion. This investment will be directed towards various clean energy initiatives, particularly offshore wind power projects. However, Sunak acknowledged the concerns expressed by car manufacturers regarding the trade regulations resulting from Brexit. He emphasized that these investment deals demonstrated the positive outcomes of post-Brexit Britain's achievement of becoming the first non-regional economy to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Nevertheless, the UK's separation from the European Union continues to pose significant challenges for several companies.

According to data provider S&P Global, the UK's economic growth in May continued to be primarily driven by the service sector. Businesses related to travel, leisure, and hospitality experienced positive effects from resilient consumer demand. However, manufacturing firms witnessed a decline in production levels, reaching the fastest pace of decrease in four months. As a result, the S&P Global/CIPS flash UK composite output index dropped to 53.9 in May, down from April's 12-month high of 54.9. It's worth noting that any reading above 50 indicates growth. Although there was a slight easing in input price inflation for companies, thanks to reduced energy bills and lower raw material costs in manufacturing, services firms faced increased costs due to significant wage inflation.

Investor sentiment towards the British Pound is on the rise, as indicated by the latest Commitments of Traders (COT) report. This report, which is widely recognized and monitored for market positioning, reveals that investors are currently displaying the most optimistic outlook since 2021. Over the past year, there has been a consistent trend of improving sentiment towards Pound Sterling, transitioning from significantly negative levels. The report highlights that the net long position in Sterling has now reached a positive net of 12,593 contracts. This represents a notable increase compared to the previous week's figure of 4,528 contracts and demonstrates a substantial improvement from the one-year low of a net negative position of -80,372 contracts.

Analysts predict that the US economy will experience a gradual decline in the current quarter, followed by a more pronounced slowdown in consumer spending and a reduction in business investment, ultimately resulting in economic contraction during the latter half of the year.

The eurozone's economic growth slightly weakened in May, reaching a three-month low primarily due to a decline in industrial production, as revealed by a significant survey. The HCOB Flash Eurozone purchasing managers' index (PMI) survey, closely monitored by analysts, recorded a drop from 54.1 in April to 53.3 in May. It's important to note that a reading above 50 indicates growth.

GBPUSD is holding firm at 1.2400

GBPEUR resides at 1.1480

EURUSD resides at 1.0797

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