Market Report : 13.02.23

Published: 13/02/2023 By ECAP

Sterling enjoyed a boost early Friday morning after the UK’s latest GDP data. The UK economy stalled in the fourth quarter of 2022, but this actually lifted Sterling as it meant the country avoided falling into a technical recession last year. Looking forward, U.K. inflation and jobs data this week will help the Bank of England determine whether to hike rates again in March. The BOE has flagged that February’s 50-basis point rate hike may have been the last in its current tightening cycle, but January's inflation report on Wednesday is expected to show price increases still in double digits. Meanwhile, tomorrow’s jobs report is expected to show that wage growth is continuing to rise, keeping pressure on the BOE and January retail sales data on Friday is expected to show another decline. As the week unfolds, markets are likely to see more reactions from economists and analysts scrutinising the UK’s GDP data.

The euro faced headwinds throughout most of last week as a string of economic data underperformed market expectations. A lull in economic data left the single currency vulnerable to significant losses against major peers, while the Euro’s negative correlation with a recovering US Dollar added to the downside pressure. Looking forward, the European Commission is to release quarterly economic forecasts for the euro area on Wednesday. Ahead of that, the Eurozone is to release revised GDP data tomorrow. Moreover, European Central Bank President Christine Lagarde is due to testify on the bank's annual report before the European Parliament in Strasbourg on Wednesday. Ultimately, investors and market participants will closely scrutinize the aforementioned data to pick clues on the EU's economic situation.

The dollar edged higher in early European trade this morning, trading close to a five-week high ahead of the week’s keenly-awaited U.S. inflation data. The dollar Index traded 0.1% higher at 103.64, not far removed from last Tuesday's high of 103.96, the strongest level since the 6th of January. Tomorrow sees the release of the latest U.S. consumer price index, which is expected to show that monthly rates ticked up in January, but the annual measures declined. Traders appear to be favouring the greenback protectively ahead of the CPI report, after revisions to the previous data set showed consumer prices rose in December instead of falling as previously estimated. A strong inflation print could force markets to rethink whether the Fed will actually cut rates this year, particularly after the strong jobs report earlier in the month.