Currency Note

A pressured pound relinquishes yesterday’s gains

By Sharyh Murray-Francis January 5th, 2023

This morning has seen the pound relinquish gains made against the euro and dollar.

Although sterling kept its fighting attitude over the course of yesterday as it maintained gains against both the euro and US dollar, this morning has seen the pound relinquish those gains. This comes after an already shaky start to the year for the pound.

Yesterday, the UK housing market saw the number of mortgage approvals plummet to their lowest level since the peak of the Covid-19 pandemic. Data from the Bank of England revealed that approvals for house purchases in Britain fell to 46,100 in November from a revised 57,900 in October.

For the remainder of this week, market watchers will be keeping a close eye on several UK data releases including the S&P’s PMI, which is due shortly and the Halifax house price index YoY, which will be released tomorrow.

Between today and Friday, markets will be anticipating a variety of data releases which could impact the euro’s movement over the course of the coming days. Retail sales will be one to watch at 10am tomorrow followed by the European Commission’s economic sentiment.  The economic sentiment indicator calculates the confidence level among manufacturers, service providers, consumers, retailers and constructors.

Over in the US, a weaker dollar will have to navigate several key data releases between now and the end of the week. The first will be balance of trade at lunchtime today, followed by non farm payrolls and much more on Friday.

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GBP: sterling gains short-lived

Sterling’s gains seemed to be short-lived as yesterday’s gains came against a backdrop of high inflation and soaring energy prices.

The British Retail Consortium reported food inflation in the UK hit a new record level of 13.3% in December. This follows a 12.4% increase in November. Likewise, the ongoing conflict in Ukraine has seen energy prices skyrocket and is expected to continue throughout 2023.

GBP/USD over the past year

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EUR: Inflation data due tomorrow

While the euro is stronger against the pound and the dollar this morning, tomorrow the eurozone will see the latest inflation rate (flash) for December. Market participants will be keen on seeing if this triggers further movement in euro rates.

In the previous data, markets saw consumer price inflation for November revised to 10.1% year-on-year, which was slightly up from the preliminary estimate of 10.0%.

The rate also slowed for the first time since June 2021 and from October’s record high of 10.6%. Despite this, November’s rate remained well above the European Central Bank’s mid-point target of 2.0%. Thus, policymakers are likely to continue raising interest rates for some time.

USD: dollar unphased by yesterday’s releases

Yesterday was an interesting data for US market watchers and the dollar itself. ISM Manufacturing PMI, JOLTs job openings for November and the FOMC’s were all released in one afternoon and seemed to have little impact on an already weakened dollar. However, things may change for the dollar on Friday as markets will be nervously awaiting the release of America’s Nonfarm payrolls.

Nonfarm payrolls is an employment report which heavily affects the US dollar, the bond market and the stock market.

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