The markets have been somewhat choppy over the past few days after various pieces of data have defied the consensus.
This morning UK Inflation data (CPI), showed it was falling faster than expected. The estimate was that the figure would fall slightly from 10.5% to 10.3%, however data showed the drop at 10.1% YoY. The figures show that inflation is creeping back towards the BOE target figure slightly faster than expected, and goes against the argument for a further interest rate hike in the near future.
Although the data was positive for UK households, it was seen as a bit of negative for the currency as investors generally favour currencies that yield higher interest, so a halt on interest rates in the UK whilst other G7 countries continue to hike would likely weigh on the pound. The pound is still up from the start of last week and briefly touched 1.2230 against the dollar on Monday and 1.1345 against the Euro, however this morning the pound resides at 1.2090 and 1.1270 respectively.
The pound's strength over the past few days has been down to a number of things including better than expected data such as GDP figures which have added some risk sentiment to the Pound. However, US Inflation data yesterday stunted the progression of both the pound and the Euro after YoY inflation which stood at 6.5% showed a slight decrease at 6.4% but worse than the consensus of 6.2%. This meant that Inflation control for the US may still be a challenge and may lead to further rate hikes in the near term.
According to the EU Commission they believe that the Eurozone will avoid a recession this year as inflation eases and gas prices slide. They have upgraded their growth forecast to 0.9% in 2023, up from the 0.3% previously estimated. The report, released on Monday morning, offers a glimmer of good news amid a still extremely uncertain and challenging landscape that remains intrinsically dependent on what step Russia takes next in its brutal invasion of Ukraine, which is nearing its one-year anniversary.
At 13.30 this afternoon, US Retail sales will be released for January, with positive numbers expected. December's figure showed a -1.1% decrease, whilst consensus expects a 1.8% increase. At 2pm today ECB president Lagarde will be speaking. Tomorrow's highlights are Initial Jobless Claims data for the US which looks like Jobless claims may increase slightly, and BOE member ‘Pill’ will be speaking at 5pm. On Friday the highlight of the day is UK retail sales at 7am.
GBPUSD resides at 1.2090
GBPEUR resides at 1.1270
EURUSD resides at 1.0720