Published: 31/01/2023 By ECAPSterling has gone back and forth during yesterdays trading session after the International Monetary Fund warned that the U.K. would be the only one of the G7 economies to contract this year. Adding further complications for the UK economy at present is Chancellor Jeremy Hunts indecision over tax cuts and the economic complications of the worker’s strike. Chancellor Hunt also issued a warning to PM Sunak regarding inflation stating that bringing inflation below the 5% mark in 2023 will be tough. On the calendar for the day, UK mortgage approvals and lending data, as well as CB consumer confidence will be released. However, the pound seems poised to follow global risk appetite and domestic headlines.
The Euro was largely unmoved yesterday as market participants await the European Central Bank’s policy decision on Thursday. However, German retail sales data for December, released earlier this morning, was considerably weaker than expected, falling -5.3% on the month in real terms. Moreover, French consumer spending also fell 1.3% on the month, further illustrating the pressures on Europe's consumers. Looking forward, the Eurozone publishes CPI data for December on Wednesday, but many analysts warn that the numbers will "have to be taken with a pinch of salt" given that Germany has delayed publishing its own figures due to technical problems. Ultimately, French consumer prices rose a little less than expected, providing some relief after Spanish and Belgian inflation data on Monday sparked fears of a round of upside surprises across the Eurozone.
The dollar hit its highest level in a week in early trading this morning, as markets worldwide dialled down their risk appetite ahead of big central bank meetings over the next couple of days. The dollar index, which tracks the greenback against a handful of advanced economy currencies, was up at 102.06, having earlier hit a high of 102.19. Markets have had an upbeat start to the year, pushing the dollar down and higher yielders up as investors look through the current high inflation rates worldwide to focus on the prospect of possible interest rate cuts later this year. However, that impulse has run out of steam in the last 24 hours.