January 12, 2023

Daily Report 12/01/2023

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Although Sterling briefly posted gains around Wednesday’s European open, the advance was short lived and the currency drifted steadily lower ahead of the US open. There was an underlying lack of confidence in UK fundamentals which sapped potential support for the currency. There will also be some concerns that Sterling lost ground despite a solid tone in risk appetite and gains in the FTSE 100 index to fresh 4-year highs.

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ECB council member Villeroy stated that the central bank will have to raise rates further in coming months. He did, however, add that the central bank needs to be pragmatic about the pace of rate hikes and he also considers that the bank aims to each a terminal rate by the summer. ECB council member Rehn stated that rates will still have to increase significantly, although there was a slight dip in expectations surrounding rate hikes with the chances of a 50 basis-point rate hike for February at around 75%.

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The latest US consumer prices data will be very important for market sentiment with important implications for short-term confidence and potentially important longer-term implications for market confidence. Consensus forecasts are for a further sharp slowdown in the headline annual rate to 6.5% from 7.1% which would be the lowest reading since late 2021 with the underlying rate declining to 5.7% from 6.0% which would be the lowest reading for 12 months. An in-line or weaker reading would reinforce confidence that inflation pressures are subsiding, increase expectations of a Fed pivot which would tend to undermine the dollar. Stronger than expected data would trigger fresh reservations over inflation and make a hawkish stance more credible which would tend to support the dollar.

Key Data 

13.30 Consumer Price Index ex Food & Energy (MoM) (Dec) Exp. 0.3% Prev. 0.2%
13.30 Consumer Price Index ex Food & Energy (YoY) (Dec) Exp. 5.7% Prev. 6%