Currency Note

Exchange rates poised as markets assess mixed data

By Christopher Nye April 28th, 2023

GDP fell in Germany in the year to end of Q1

Sterling climbed to its strongest point against the euro for a week over the course of yesterday, and returned close to its best position for a year against the US dollar.

It will have been an interesting morning for central bankers so far, as early indications are that inflation has increased in several European economies. On the plus side, so has GDP, ahead of expectations in Spain, France and Italy. However, data just out shows that the German economy shrank in the past year by 0.1%.

The big event of the yesterday was the seriously disappointing result for quarterly US GDP, which showed that the US economy grew by just 1.1% in the year to the end of the first quarter of 2023. That’s a sharp deceleration from the 2.6% recorded in the year to the end of December, and barely half of the predicted growth.

The blame is being firmly placed on the US Federal Reserve’s aggressive interest-rate raising policy of last year, hitting business investment and housing. Also negative for the nation at large, but not necessarily for the dollar, the core price index for personal consumption accelerated ahead of expectations. On the other hand, there was positive news elsewhere in the economy, with Americans spending 3.7% more over the year, nearly four times better than the previous quarter’s increase.

There is a mass of data coming out this morning  from Europe’s biggest economies. This morning so far we have heard that French and Spanish GDP has increased to an annual rate of 0.8% and 3.8% respectively. On the negative side, French inflation has increased to 5.9% and Spanish to 4.1%. German and Italian data will be out shortly.

In business news, the UK government has removed the so-called ‘sunset clause’ that would have automatically removed all EU law from the UK statute books by the end of 2023. The decision by business secretary Kemi Badenoch will be welcomed by much of UK business and other groups, while being denounced by Conservative Party Eurosceptics.

The tit for tat between Microsoft and the British government continued, following the tech giant’s president Brad Smith complaining that the EU is now more attractive for business, as a key merger was banned by UK regulators. PM Rishi Sunak’s spokesperson pointed out that: “Last year the UK became the third country in the world to have a tech sector valued at one trillion dollars (£802bn)… the first in Europe by some distance.”

With so much data hitting the wires today and next week, make sure any upcoming transactions are protected against the risks of sudden market movements. Secure a fixed exchange rate now with a forward contract; call your Business Trader on 020 3918 7255 to get started.

GBP: Pound strengthens ahead of the long weekend

Sterling either strengthened or was stable against most major currencies this week, in a quiet week for data but plenty of business news. This morning it has strengthened sharply against the Australian and Canadian dollars, while powering to a seven-day high against the euro.

It has weakened slightly against the US dollar this morning, but is still trading close to year-long highs.

Monday is a public holiday in the UK and Europe, but there are various lower level data releases during next week, including Nationwide house prices on Tuesday. Nationwide has been the more pessimistic of the various housing indices and recorded a 3.1% annual fall last month.

However, there could well be more movement over the course of the day as data emerges on the EU and US side over the next few hours.

GBP/USD past year

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EUR: Mixed signals keep markets guessing

The euro weakened almost across the board yesterday, with only a small rise against the Japanese yen to spare its blushes.

What will this morning’s slew of data do? With so much data coming out during the course of the morning, the markets may be adopting a wait and see approach.

In the meantime, the euro is currently at a 12-month high against the US dollar and 7% above the average rate of the past year.

After today’s excitement there will be no data releases on the May Day public holidays, but plenty more on Tuesday, including eurozone inflation.

USD: Dollar shrugs off poor GDP as Fed decision looms

Despite the disappointing GDP data yesterday, the greenback had a mixed day with only small losses and gains.

With no public holiday in the US on Monday, there will be data on Manufacturing PMI from both ISM and S&P Global.

Most of the big data and market-moving events happen in the early part of the month in the US, so watch out next week for JOLTS Job Openings on Tuesday, Non-Farm Payrolls on Friday and, most of all, the Fed’s interest rate decision on Wednesday. Will the rate-setting panel (the FOMC) be swayed by this week’s GDP?

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