Market Report : 27.01.23

Published: 27/01/2023 By ECAP

Sterling has been struggling against many of its peers since the last BoE meeting in December, as domestic headwinds continue to incite recessionary fears. The Confederation of British Industry’s latest distributive trades survey showed a larger-than-forecasted fall in UK retail sales, which is adding to worries about the UK economy. Furthermore, Andy Haldane, former Chief Economist for the Bank of England, warned that there was “more pain to come” as mortgage costs rise and real wages continue to fall. Sterling continues to be on the back foot this morning as worries about the UK economy once again puts pressure on the beleaguered pound.

The Euro struggled to find a clear direction yesterday as a lack of major data has left the single currency exposed to market sentiment. The loss of momentum was spurred as explosions rocked Kyiv in the wake of the “West” sending tanks to Ukraine. After Germany announced it will be sending Leopard tanks to Ukraine, the US followed and pledged 31 M1 Abrams tanks. In response, Dmitry Peskov, spokesperson for the Kremlin, commented that sending tanks is seen as a “direct involvement” from the west. Fears are mounting of the conflict escalating, sapping demand for the Euro. Any further developments out of Ukraine could weigh on the Euro as Russia’s aggressive response to the West sending tanks could deter investors with the conflict escalating.

The Dollar edged higher against the Euro and Pound yesterday following data that showed the U.S. economy maintained a strong pace of growth in the fourth quarter. The world's biggest economy expanded by 2.9% on an annualised basis in the September to December timeframe, down from 3.2% in the third quarter and above consensus estimates of 2.6%. However, the economic data had something in it for everybody; for the dreamers who think the economy is just slow enough to put the Fed on hold, and the pessimists who think growth is still too hot for the Fed to step away. Ultimately, this is a double-edged sword for investors, as it could embolden the Fed to keep key interest rates at restrictive levels for longer. While financial markets have largely priced in a 25-basis point rate hike from the central bank next Wednesday, that sentiment is not unanimous and could support the greenback in the short-term.