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Market Update

• Posted by currencies in Bank of England, Currency, Dollar, Economy, EUR, Fed, GBP, Inflation, Rate Cuts, Retail Sales, Sterling, UK, Uncategorised
• April 17, 2023
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After a disappointing retail sales release from the U.S on Friday, we saw the markets very quickly jump into positions on the Dollar- GBPUSD fell from 1.25 down to 1.24, EURUSD from 1.10 down to 1.09, and GBPEUR from 1.1370 down to 1.1280.

So why did the Dollar strengthen after weak U.S data? The answer is very simple- the Dollar strengthens usually in bad times, so when markets aren’t performing well and economies are bad, the Dollar is our safe haven- but when times are good again, we can sell the Dollar and bet on riskier assets such as stocks or other riskier currencies (GBP or EUR).

However, with that being said, this is a short-term move- the longer-term outlook suggests we should see the Dollar weaken over the long term (Good news for EURUSD and GBPUSD buyers)- as long as there are no massive shocks in the market and Central Banks stay on the path they have already laid out, we can see the Dollar weakening further as the year progresses.

Moving onto economic data for this week- the first main release is UK unemployment data on Tuesday- we are expecting this to remain at 3.7%- however, if we see this rise for whatever reason then we would expect to see the Pound weaken- I have been reading a lot of reports concerning UK employment being weak so this is something worth noting.

On Wednesday we have the UK Inflation rate and core inflation rate- we are expecting inflation to drop down to 9.2% and core inflation to drop to 6%- Core inflation does not include volatile food prices and fuel prices which is why there are 2 releases with 2 different numbers- it is important to see what inflation looks like without energy and food, especially when we are seeing the largest rises in food currently. Later on Wednesday we have the same releases for Europe- expecting to see a slight rise to 5.7% for core inflation and a rise to 0.9% for month on month inflation- which will give the ECB a reason to continue their rate hikes.

On Thursday we have jobless claims out of the U.S- and we are expecting to see a rise in this number which is not good for the U.S economy- unfortunately, this does not necessarily mean the USD will weaken- so please tread this data release with caution. On Friday we have UK retail sales (expected slightly better) and flash PMI’s- with manufacturing looking quite weak and services looking slightly better- as this will balance out we do not see much movement on the back of this unless the result is quite different to forecast- but as this is a flash PMI (Not the actual release)- then we see no movement at all.