ACM Update 27-02-23
A relatively quiet last full week of February went by without too many major data releases of note. UK headlines were mainly focused on the recent movements towards a finalising of the Northern Ireland Protocol deal. Whilst not a market mover as of yet, solving the situation would definitely provide stability for GBP.
In terms of economic data releases, sterling saw a boost on Tuesday morning with significantly better than expected Manufacturing and Services PMI numbers. The manufacturing sector recorded its highest figure in seven months at 49.2 vs 47.5 expected, still slightly in a contraction. Meanwhile the services sector was estimated to be in expansion at 53.3 versus the 49.2 forecast, its best since June of last year. Perhaps a more positive outlook for the UK economy? Sterling gained approximately 1% against Euro and Dollar on Tuesday morning off the back of these releases.
The UK housing market on the other hand seems to be stagnating, with Nationwide calculating just a £14 increase in the average house price in February. The Bank of England’s ongoing rate hikes are certainly not helping the housing market in early 2023.
For the week overall, sterling enjoyed a buoyant week against the Euro, almost solely thanks to the Manufacturing and Services releases of Tuesday. Movements overall for the week can be seen in the chart below:
A quiet start to the week in the US, with a bank holiday on Monday for President’s Day. Manufacturing and Services sector data were also released here too, at 47.8 and 50.5 respectively, both slightly above expectation.
The main event was the release of the minutes from the latest Federal Reserve meeting. Whilst the 1st Feb meeting delivered a smaller rate hike than had been expected, concern about inflation amongst Fed members remains high. Despite now clearly being in a disinflationary phase, some members still wanted the 50 basis point hike which markets had been expecting.
The Dollar remains strong and had a good week against the Euro and closed up on the week against GBP too, despite the above-mentioned favourable sterling data. With the Fed very much still in “hike mode”, we can expect Dollar strength to remain for now, at least until that rhetoric changes. Movements last week can be seen in the chart below:
All was relatively quiet in Europe. The German ZEW economic sentiment recorded its most optimistic figure in 12 months, which is positive news for the Eurozone’s biggest player. The Manufacturing/Services stats showed that the latter is performing significantly better than the former in Europe at present. Inflation for the year to January was confirmed as 8.6% in the Final CPI numbers.
- In Australia, the latest RBA minutes caused some weakness for the AUD, with CPI currently outrunning PPI and also wage growth. Interest rates are forecast to peak at 4.2% later this year.
- Canadian inflation numbers were released showing a larger drop than expected last month, now running at 5.9% and expected to be back at 3% by the middle of the year.
- New Zealand saw another interest rate hike of 50 basis points, taking rates to 4.75% and their highest since December 2008.
The week ahead:
Monday – MPC’s Ben Broadbent speech (09:00 UK time)
Tuesday – MPC’s Huw Pill & Catherine Mann speeches (12:15 & 12:30), Canadian GDP (13:30)
Wednesday – Australian CPI (00:30), Manufacturing PMI EU/UK/CAN/USA (08:15 to 15:00), BoE’s Andrew Bailey speech (10:00)
Thursday – Eurozone CPI Flash Estimate exp. 8.2% (10:00)
Friday – Services PMI EU/UK/USA (08:15 to 15:00)
As mentioned, a relatively quiet week last week and this week is also this in terms of significant data releases. Speeches from three members of the Bank of England’s Monetary Policy Committee are the most notable events, especially that of Governor Andrew Bailey on Wednesday morning. Any hints regarding ongoing monetary policy will be a big driver for the pound this week.
Sterling-Dollar remains very much at the lower end of its current range, presenting an excellent opportunity for Dollar sellers at present. Anyone on this side of the equation should reach out to the team promptly to discuss appropriate executions strategies for the week ahead.
Have a great week.