Currency Note

Pound loses momentum against major rivals

By Roseanne Bradley May 25th, 2023

Following yesterday’s news of slowing UK inflation, the pound surged to its highest level against the euro since December but was unable to maintain said gains. Instead, sterling lost close to 0.5% and 0.34% respectively, against the US dollar and euro amid concerns the UK is facing a unique inflationary problem.

This comes after Bank of England governor, Andrew Bailey admitted to MPs on Tuesday that the central bank had failed to control inflation. Markets forecast an interest rate hike to 4.5% in June.

This morning, Gfk consumer climate indicator revealed the German economy contracted 0.3% on quarter in Q1 of 2023. This was revised from an initial estimate of no growth and marks the second consecutive quarter of GDP decline, indicating a recession.

Yesterday, the German business climate index dropped by 1.7 points to 91.7. The reading fell short of market expectations of 93.0 and marked the first monthly decline since October 2022.

It’s a quiet day for data releases today but economists will be gearing up for tomorrow as markets will receive the latest UK retail sales and various spending and manufacturing data from the US.

In South Africa, the country’s annual inflation rate fell to an 11-month low of 6.8% in April, below market forecasts of 7%. The current rate remains above the South African Reserve Bank’s (SARB’s) target range of 3-6%.

Eurozone equity markets experienced the biggest sell-off in over two months yesterday as German’s DAX 40 index retreated over 2% to a three-week low. It’s believed euro investors are being negatively influenced by ongoing uncertainty surrounding US debt ceiling negotiations.

Yesterday researchers at the London School of Economics revealed British households have paid £7bn since Brexit to cover the extra cost of trade barriers on EU food imports.

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GBP: Inflation falls but food prices continue to surge

Yesterday the UK inflation rate fell to 8.7% in April, from 10.1% in March. This sharp drop is due to slowing energy prices, however food and drink price inflation remains above 19% – close to its 45-year high.

GBP/USD: the past year

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EUR: French business climate worsens

This morning, the manufacturing climate indicator in France fell for a third consecutive month to 99 in May from 101 in April. This is the lowest level seen since March 2021.

USD: US debt talks ongoing

Yesterday, Wall Street opened in the red with no resolution in sight for the ongoing US debt-ceiling deal. The Dow Jones fell nearly 200 points and both the S&P 500 and Nasdaq were down 0.7%.

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