February 13, 2023

Daily Report 13/02/2023

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Sterling was unable to gain significant support from the latest UK GDP data with relief that the economy avoided dipping into a technical recession offset by fears over underling stagnation in the economy. There were also underlying fears surrounding prolonged weakness in the industrial sector while the trade deficit widened in the month. There were particular concerns surrounding trade with the EU, reinforcing pressure for the government to secure improved relations with the EU. The overall impact was limited with global developments tending to dominate. Dollar strength and reservations surrounding risk conditions pushed Sterling lower.

The latest report from the Chartered Institute of Personnel Developments continued to indicate that the labour market was tight with a stronger pace of wage increases which will maintain expectations that the Bank of England will have to maintain a tight monetary policy to bring inflation under control.

Sterling was unable to make any headway amid a fragile risk tone.

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ECB council member Schnabel stated on Friday that further rate hikes will help bring inflation back to the bank’s target. There was little impact with a hawkish central bank stance priced in and the Euro overall tended to drift lower with fragile risk conditions.

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Eurogroup Meeting 

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The US University of Michigan consumer confidence index recovered further to 66.4 for February from 64.9 the previous month and above expectations of 65.0. There was a significant recovery in the current conditions component, but this was offset by a slight decline in the expectations component. The 1-year inflation expectations index increased to 4.2% from 3.9% while there was no change in the 5-year expectations index at 2.9%.

The dollar held a firm tone and the Euro continued to lose ground with a retreat  against the US currency late in Europe.

Philadelphia Fed President Harker stated that the January jobs report didn’t change the outlook for monetary policy. He added that rates need to increase to at least 5.0% and stay there for some time. He also stated that the central bank was not likely to cut rates this year, but may be able to do so in 2024 if inflation starts ebbing.

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FED Bowman Speech