February 14, 2023

Daily Report 14/02/2023

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In reported comments on Monday, Bank of England MPC member Haskel stated that the central bank should be really, really careful over the risk of high inflation becoming embedded in the economy and the data would need to be watched very closely in the coming months given high levels of uncertainty. Hawkish rhetoric provided an element of Sterling support, although Haskel was also hawkish in last week’s testimony to the Treasury Select Committee. Sterling also drew support from a stronger tone surrounding risk appetite and fresh gains in equities, especially as markets had been expecting a more defensive tone ahead of Tuesday’s US inflation data.

The UK labour-market data reported an unchanged unemployment rate and a larger monthly increase in employment. The increase in headline average earnings slowed to 5.9% from 6.5% and below consensus forecasts of 6.2%, but underlying earnings accelerated to 6.7% from 6.5%. Sterling was boosted by the underlying data with a move higher against the dollar amid expectations that the Bank of England would have to maintain a more hawkish policy stance.

Key Data

GBP  ILO Unemployment Rate  Prev 3.7% Actual 3.7%

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ECB vice President de Guindos stated that rate increases beyond March will depend on the data. Fellow council member Centeno commented that smaller rate hikes by the central bank would require medium-term inflation nearing 2.0%, although the rhetoric had little overall impact. The Euro resisted further selling pressure after the European open and gradually edged higher, although overall ranges were relatively narrow. Furthermore, the bullish mood across markets assisted in lending support to the single currency, despite it’s safer status. By exerting pressure on the US Dollar, the Euro was able to make some ground due to its negative correlation with the ‘Greenback’. However, concerns over further escalations in the Ukraine Russia war may have prevented the single currency from making strong gains. With Russia reporting that they had gained ground on the frontline, anxieties are abound over future escalations as the conflict continues to show little sign of abating.

Key Data 

10am Gross Domestic Product Prev 0.1% Exp 0.1%

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Fed Governor Bowman stated that the central bank was not seeing as much moderation in inflation as it would like and that the labour market is still very strong. She added that there is a lot of data between now and the next Fed meeting, but she expects that the bank will continue to increase rates. Although the rhetoric was hawkish, the Euro resisted renewed selling and strengthened against the dollar as European currencies regained ground against the US currency. The latest US inflation data release on Tuesday will be very important for all asset classes. Consensus expectations are for a decline in the headline rate to 6.2% from 6.5% with the underlying rate retreating to 5.5% from 5.7%. Stronger than expected data would reinforce concerns over the inflation outlook and increase pressure for a more restrictive Fed policy while there will be notable relief if the data is weaker than expected. The situation will be complicated by benchmark revisions and changes to component weightings for this release with volatile trading inevitable.

Key Data

15.00pm Consumer Price Index Prev 0.4% Exp 0.4%