GB Pound
What happened last week? ↑ Sterling was able to eke out a gain against the beleaguered USD but trended lower against the EUR. What to watch for in the short-term? ↓We noted last week that we could foresee that the 100bps of tightening priced in for the UK this year would come under pressure and movements in markets have taken 5bps off those forecasts already. While this isn’t an earth-shattering move in the wider scheme of things it suggests that the pressure for sterling is already starting to build. CPI and wage readings this week may not be the data needed to further exacerbate such a move, but it seems clear that the market has a ceiling on these expectations at the 100bps mark, possibly limiting sterling outperformance. What about the coming months? ↓ We look for GBPEUR to maintain its downwards trend with a base around the 1.12 level through Q1 Calendar Tuesday 07:00 GMT | Unemployment Rate Wednesday 07.00 GMT | CPI
US Dollar
What happened last week?
↓ Friday’s negative ISM reading from the US services industry highlighted an increased recession risk in the States, weakening the USD.
What to watch for in the short-term?
↓ The dollar collapse that has started 2023 was accelerated last week by improving risk sentiment in Asia despite news from China that some 60,000 people had died of Covid in the past month.
As noted above, Chinese GDP released tomorrow morning holds the key for risk sentiment in the early part of the week with markets clearly pricing in an optimistic recovery from a poor 6 months in the world’s 2nd largest economy.
The data calendar is light in the States this week with the US off today for Martin Luther King Day.
What about the coming months? ↑ If the wider market belief is that the dollar downtrend is in place now for the rest of the year then this can only be confirmed by a more benign Federal Reserve stance.
Calendar
Wednesday 13.30 GMT | PPI
Thursday 13.30 GMT | Retail Sales
Euro
What happened last week? ↑ EURUSD has recovered towards 1.07 having hit a low of 1.0480, courtesy of the market’s negative reaction to the US jobs numbers on Friday. What to watch for in the short-term? ↓With the ECB finding its voice and a little bit of a backbone EURUSD has started 2023 in a very strong fashion. While it might be a little early for a trip above the 1.10 level, dollar bears and euro bulls will be targeting such a run should notes from the ECB show that rate setters in Frankfurt are not backing down anytime soon. President Lagarde speaks at the World Economic Forum in Davos on Friday although speeches at such events tend to shy away from monetary policy. What about the coming months? ↓ Asian equity market outperformance has also helped support the single currency and euro bulls should be keeping an eye on date from Beijing and Seoul as much as from Berlin and Paris. Chinese GDP tomorrow will be very closely watched. Calendar Tuesday 10.00 GMT | ZEW Economic Sentiment Wednesday 10.00 GMT | Core HICP
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