Pound stays afloat on flat GDP reading
Daily Currency Update
Last week saw the massively anticipated UK GDP reading come in at a flat 0% reading for the last quarter of 2022. After much speculation around the UK economy's risk of going into a recession, which was supported last year by the Bank of England chief, Andrew Bailey, who forecasted a long recession that could last five consecutive quarters, the reading marginally flattered the pound sterling.There is still plenty of risk of the UK economy falling into recession, but its ability to stay afloat during a time of a cost of living crisis, minimal consumer confidence and higher interest rates, has given the market a small amount of confidence.
All eyes now turn to January's UK CPI posting, out on Wednesday. Inflation seems to be flatlining, and other economies such as the US are seeing a fast reduction in inflationary pressure. This reading will give clues as to the Bank of England's ability and desire to want to raise rates further and by how much, or whether in fact, the speculation that rate cuts could be on the cards at the end of this year do in fact materialise.
Key Movers
It was a mixed week for the US Dollar last week, seeing it being outperformed by the majority of its G10 peers except for the Euro and Australian dollar. Some US dollar strength could be attributed to the continuing impact from a tighter US jobs market and some hawkish Federal Reserve comments. A few Fed officials re-iterated that the Fed is not done with keeping interest rates at restrictive territory yet. Although Powell’s comments were not as hawkish as the others, he said that if “strong jobs data persists, peak interest rates may be higher” and the Fed will have to “do more rate increases, then see if that is enough”.EURUSD dropped further from the 1.08 to 1.06 level last week. Without much economic release that dragged the euro down, the weakness was more likely due to the continuation of the dovish market reaction after the ECB February hike. However, last week did see ECB policymakers state that the Eurozone won’t face a deep recession, and that if it happens it will be shallow. This could support the Euro into this week.
Expected Ranges
- GBP/USD: 1.1985 - 1.2060 ▼
- GBP/EUR: 1.1180 - 1.1285 ▼
- GBP/AUD: 1.7180 - 1.7470 ▼
- EUR/USD: 1.0640 - 1.0775 ▲