Last week, the pound attempted to regain its footing after a series of declines. Despite the economy avoiding a recession in December with flatlined GDP, Bank of England Economist Pill warned against over-steering on interest rates. Meanwhile, Bank of England Governor Bailey repeated his expectation for inflation to decline rapidly in 2023. The UK is set to have a busy data week, with key releases including the Employment data, House Price Index, Retail Sales, and CPI.
ECB President Lagarde is determined to “stay the course” on inflation, as her board members prepare the market for more rate hikes. Banque de France Villeroy declared that France will avoid a recession. However, the EURUSD declined by 1% as investors worried about the strong US jobs market. The Swedish and Norwegian central banks also supported their currencies at the euro’s expense. The Eurozone is set to release its Flash GDP and Current Account data this week, and investors will be watching to see if the good news continues.
In the US, investors are torn between the possibility of interest rate cuts and a strong labor market that reduces those chances. Key data releases this week include Retail Sales, the Producer Price Index, and CPI. The release of headline and core CPI on Tuesday will give investors a direction on the inflation outlook and potential rate hikes from the Federal Reserve.