Gentium FX | Daily Report - 6th March 2023 - External Factors To Drive Sterling This Week

GBP: Sterling remains under pressure as uncertainty on global equity markets grows with the Bank of England now likely to deliver less interest rate hikes than initially anticipated. Sterling will be at the mercy of global risk sentiment and interest rate pricing. Global equities have struggled in recent days as fears that the US Federal Reserve and European Central Bank will raise interest rates to levels that will squeeze the life out of the global economy. Sterling typically has a positive correlation with investor sentiment so when global risk sentiment is high then Sterling performs well and vice versa. Last week we already heard from Bank of England’s Andrew Bailey and Huw Pill. Any Sterling movement this week will likely be driven by external factors.

EUR: The European Central Bank looks likely to hike by 50 bp at the 16th March meeting. A further 150 bp of tightening is priced in by the end of the year. Today, focus in the Eurozone will be on January Retail Sales and the March Sentix Investor survey. European Central Bank Chief Economist Philip Lane will also speak in Dublin around 10 am this morning. Investors will watch for any comments relating to monetary policy.

USD: Focus in the US this week will shift to activity data and Fed speak. On the activity side, Friday's release of February US jobs data will be in focus. This will provide an insight as to whether tight conditions in US labour markets are starting to ease. The other main point of focus this week will be the testimony to the Senate (Tuesday) and House (Wednesday) from Federal Reserve Chair Jerome Powell. He will be testifying on the Fed's semi-annual monetary policy report which was released on Friday. Investors will wait to hear what he thinks about re-accelerating the pace of hikes to 50bp from 25bp (+30bp is priced for the 22 March meeting) and any indication on what the terminal rate might be going forward.

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