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  • Audere Research

Foreign Exchange Analysis ~ 23 January 2023

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GB Pound

What happened last week?

Sterling caught up with the euro and maintained its outperformance over the dollar.

What to watch for in the short-term?

Sterling was held up well by strong and stable inflation and wage data last week. Should this week’s PMIs show that the UK economy is so far avoiding recessionary pressures then we can expect markets to continue to back the pound alongside increased bullishness around the prospects for further rate rises.


News that Prime Minister Sunak is looking to cut a deal to prevent strike action in February will also take some of the political risk premium out of sterling assets.

What about the coming months?

GBPUSD is targeting a break above the 1.25 level and will look to base around there through Q1

Calendar

Tuesday 09:30 GMT | Manufacturing PMI

Tuesday 09:30 GMT | Services PMI


US Dollar

What happened last week?

Dollar traded lower throughout the week with new multi-month lows seen against a number of G10 currencies.

What to watch for in the short-term?

With a Fed meeting next week there is not much appetite for investors to further take lumps out of the dollar quite yet but the greenback remains on the weak side as we open up this week.

Thursday’s GDP report and Friday’s PCE inflation number, the Fed’s preferred measure, will be closely watched for indications that the Federal Reserve are not correct in pushing for additional hikes in the coming months.

What about the coming months?

While we have spoken exclusively about hikes in interest rates for a number of months now, it is the prospect of rate cuts that we expect the central bank to warm against in upcoming meetings. 50bps of reductions are priced in by the end of the year; moving against these would be a dollar positive.

Calendar

Thursday 13.30 GMT | GDP

Friday 13.30 GMT | PCE inflation


Euro

What happened last week?

Euro continues to outperform amongst the G10 with ECB speakers all pushing for higher rates.


What to watch for in the short-term?

Swap rates in the Eurozone continue to suggest that the market is struggling to push back on the ECB’s communications that rates are heading higher.

EURUSD is now back into a place that is hasn’t traded for around 9 months. Breaking through the 1.10 level may prove problematic given the number of technical levels around that number but strong PMIs tomorrow or a weak US inflation number on Friday could prompt a test of that figure.

What about the coming months?

News that Russian oil and gas flows into Europe alongside this current cold snap may be enough to fade the recent increase in positive sentiment towards European industrial assets.

Calendar

Tuesday 07.00 GMT | German Consumer Confidence

Wednesday 07.00 GMT | German IFO



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