Poor growth figures in the US aids markets

GBP v USD up 2% in the last week


Volatility for the week ahead will likely come from sources outside of the UK, as Friday's GDP number, production numbers and balance of trade are the only releases to go on. Those readings are not expecting fireworks either, so the Pound will be moved by factors elsewhere.

The usual 0.5% daily trading ranges have continued, but the market is readjusting to what happened with the US data released last Friday that propelled £-$. More on what happened is below, but the US & its Dollar live in a counter-intuitive situation. Bad news for the US economy, is good news for markets and that means Sterling too. 

£-€ rates may see a slight reversal continuing this week, but major advances look frustrated for now. There was 3% lost in 3-weeks for this pair only recently, so the road to recovery is still being trodden on here. Risk sentiment rarely plays a part here, so this is a straight UK v EU battle, upon which there is currently not much data to work with. 

With the re-opening of China, positive energy news and the latest poor economic data out of the US, the single currency is performing well. The China news is important to supply chains in Europe (exporting) and so the Euro's value as a whole will increase. Euro-Zone gas prices are falling and are now on par with pre-Russian invasion levels, so the energy crisis talk will subside and it aids in the economic upturn with the bloc. 

Following this, Goldman Sachs have just announced they believe the Euro-Zone will not contract in 2023 and so will avoid a recession. There is a chance that others will now forecast the same, which will put pressure on the Pound. The ECB is expected to maintain its hawkish stance and so the Euro could be in for a strong start to the year. 

On Friday, the US produced some really negative economic data that has turned the heads of every investor. The services number (one of the last shoes to drop before a recession) came in miles away from forecast and registered a contraction.

A slowdown in the number of jobs being created and average earnings was also noticeable. It means the Fed's next meeting will be a big one (Feb), as consensus is that a 25bp rate hike will be the call rather than the aggressive 50-75bp seen the last 6-months. The USD dominating cycle could be coming to an abrupt end.


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