Published: 24/02/2023 By ECAPThere have been a growing number of reasons for UK investors to be more optimistic in recent days despite the headlines being dominated by supermarkets rationing food and real wages still down. Sterling has been consolidating its recent gains this morning helped by data showing U.K. consumer confidence rebounded by the most in almost two years in February. The GfK’s consumer confidence indicator jumped seven points to -38, a 10-month high. Moreover, the more encouraging data emerging on the economy also led multiple financial titans to make a more optimistic tweak to their forecasts for the year ahead. A recession in the UK is no longer likely thanks to lower gas prices and unclogged supply chains as well as improving business confidence.
The Euro remains on the back foot this morning and is on track for a weekly loss of around 1%, with broader risk aversion keeping the single currency under pressure. Moreover, this morning’s data release showed a stronger than expected contraction of the German economy. This, along with recent weaker than expected economic data, adding to signals that Eurozone’s largest economy likely slid into recession in the first three months of 2023, contributes to pressure on Euro. Nevertheless, the European Central Bank has continuously made efforts in bringing down inflationary pressures by hiking interest rates. Ultimately, markets are pricing in an increase of 50-basis points in March and 25-basis points in May, as well as a 25-basis point hike in June.
The US dollar remained in demand in early European trade this morning ahead of the release of the Federal Reserve’s favourite inflation measure, with interest rates seen staying higher for longer. The dollar is on course for its fourth consecutive week of gains with the Dollar Index last seen at 104.58, not far from the near seven-week high of 104.78 it hit during the previous session. Fourth quarter US GDP growth was revised lower, but the economic data released this year has painted a stronger picture of the US economy. Furthermore, a drop in weekly jobless claims showed that the job market remained hot, while retail sales were robust and business activity rebounded to an eight-month high in February. Ultimately, this all provides more headroom for Fed officials to continue hiking interest rates in an attempt to tame inflation, with the market expecting at least two, and probably three, more increases of 25-basis points.