Currency Note

Sterling takes a hit following IMF’s gloomy outlook

By Sharyh Murray-Francis February 1st, 2023

Yesterday's bleak economic outlook from the International Monetary Fund (IMF) triggered sterling to weaken against the euro and the dollar.

Sterling weakened against both the euro and US dollar yesterday following a bleak economic outlook from the International Monetary Fund (IMF) and warnings of recession.

The gloomy outlook also reverberated throughout UK stock markets as London’s FTSE 100 stock also took a dip. London’s premier index fell 0.17% to 7,771.69 points.

Euro-watchers will have lots of interesting data releases to keep a close eye on for the remainder of this week. At 10am the eurozone will release both its latest unemployment rate and inflation rate. All before the big ECB decision on Thursday.

In European stock markets, Germany’s equity markets edged down on Tuesday, extending losses for the second session in a row as investors await the ECB’s latest decision. The benchmark Stoxx 600 lost 0.2%.

Members of the Federal Reserve’s open market committee (FOMC) will gather later today to decide on the Fed’s next interest rate.

According to analysts, today’s meeting could see the Fed dialing back the size of its rate increase for a second straight meeting. A 25pb hike is expected however, this will still push borrowing costs to their highest in over a decade.

Investors will be paying close attention to the Fed’s decision.

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GBP: Nationwide housing prices fall

Following yesterday’s mortgage lending and approvals, markets have just seen the latest Nationwide housing prices year-on-year and month-on-month. The last YoY data revealed the house price index increased by 2.8% in December, less than 4.4% in November, marking the fourth consecutive fall. This morning’s release followed suit as it pointed to the fifth consecutive fall in house prices.

The Nationwide house price index in the UK increased by a much smaller 1.1% YoY in January, well below market forecasts of 1.9%. Compared to the previous month, house prices fell 0.6%, after a 0.3% drop in December.

GBP/USD over the past year

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EUR: Spain’s Manufacturing PMI rises

We’ve just seen the latest manufacturing PMI data for Spain. The previous rise to 46.4 showed a sixth successive month of deterioration in operating conditions, as well as the weakest rate for three months. This morning, Spain’s index rose to 48.4 pointing to a seventh successive monthly contraction in the country’s manufacturing sector. It also indicates  the softest since decline last September.

It is a similar story for France, which saw PMI rise to 50.50 this morning, following a previous 49.20.

USD: ISM manufacturing employment to edge down

On Tuesday market watchers digested several economic data releases including the US employment cost index, employment cost wages and Chicago PMI. Today, all eyes will be on the latest manufacturing employment subindex from the Institute for Supply Management (ISM).

In the previous data release, the subindex increased to 51.40 points from 48.40 in December, which was its highest reading in four months. Markets expect that number to edge down slightly to 51 in today’s release.

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