Market Report : 27.02.23

Published: 27/02/2023 By ECAP

Sterling maintained its ground against most comparable currencies last week, following a sharp bounce in the S&P Global PMI survey for February as well as hawkish economic and monetary policy commentary from Catherine Mann at the Bank of England. In addition, other data has indicated a less bleak picture of the public finances just weeks out from the March budget. This comes at a point when inflation risks are still widely perceived to remain very much on the upside for the UK, with possible implications for the bank rate in the weeks and months ahead. Nevertheless, slightly better growth prospects, sticky inflation and some further monetary tightening are the story across the US, the eurozone and the UK at the moment.

The Euro managed to hold its ground against a basket of currencies last week, helped in part by news that the Eurozone economy managed to record some growth last month. The S&P Global PMI survey for the currency bloc climbed to a seven month high of 50.3 in January. Objectively, these are not exactly stellar numbers, but they do at least raise some hope that outright recession can be avoided across the currency area. Looking forward, there are no major European data releases due today, but preliminary inflation data from Germany, France and Spain are due on Tuesday and Wednesday, followed by the flash number for the whole euro area on Thursday. While another 50-basis point rate hike at the European Central Bank’s upcoming meeting in mid-March is almost certain, what happens beyond then is still up for debate, so this week’s preliminary data on Eurozone inflation will be closely watched.

The dollar held firm near a seven-week peak this morning, after a slew of strong US economic data reinforced the view that the Federal Reserve will have to raise interest rates further and for longer. Data on Friday showed US consumer spending rebounded sharply in January, while inflation accelerated. The personal consumption expenditures price index, the Fed's preferred gauge of inflation, shot up 0.6% last month after gaining 0.2% in December. The index is up 3% for February and set to snap a four-month losing streak as investors adjust their expectations of US interest rates remaining higher for longer. The market is now pricing rates to peak at 5.4% in July and remain above 5% through the end of the year.