One minute we’re all celebrating the festive season and the new year and then in a flash (or at least that is how it feels to me) the first month of 2023 is all but over.
This week promises to provide a very lively end to January and an even livelier start to February with interest rate decisions on Wednesday from the US Federal Reserve (Fed) followed 24 hours later with the latest interest rate decisions from both the Bank of England (BoE) and the European Central Bank (ECB).
The majority of analysts believe all three will raise interest rates.
The issue then becomes by how much; the voting pattern of the rate setting committee members and their outlook for the rest of 2023 and into 2024.
That should be the principal driver of the markets for the fortunes of the Pound, Euro, and US Dollar in February.
United Kingdom Interest Rates
In the UK, the BoE are expected to raise UK interest rates for the tenth monthly meeting in a row by 0.5% to 4%, its highest level since November 2008. It’s worth noting that as recently as November 2021, UK base rates were at 0.1%.
Other than inflation, one of the major issues troubling the BoE policymakers is that in the UK, productivity in the public sector is 7.4% below pre-pandemic levels compared with a 1.6% increase in the equivalent economy-wide measures according to the latest Office for National Statistics (ONS) figures.
Doug McWilliams, founder of the Centre for Economics and Business Research (CEBR), said \”The fall suggested spending on public services would be £73bn higher this year than if public sector productivity had climbed at its pre-pandemic rate.\”
Four months ago, Deutsche Bank said \”Sterling had all the weaknesses of an emerging market currency. \” Last week Deutsche went bullish on sterling.
Maybe they are looking beyond the constant ‘doom and gloom’ headlines in the UK and looking at the facts, including the employment data which shows that in the euro area as a whole, the unemployment rate is 6.5%. Its 6% in the European Union (as a whole), 3.7% in the UK and just 3.5% in the USA.
United States Interest Rates
In the USA, economic growth slowed less than expected in the fourth quarter of 2022 to 2.9% on an annualised basis as the country’s economy proved more resilient than expected after the aggressive interest rate rises seen by the Fed throughout last year
The European Union Interest Rates
In the euro zone, Germany’s services Purchasing Managers Index (PMI) jumped back above 50, meaning output is growing, as did France’s manufacturing survey which should allow the ECB to raise interest rates again to tame inflation which is still running at 9.2%.
In other news, Jacinda Ardern, New Zealand’s prime minister since 2017 announced that she will step down rather than contest a general election this year.
Global oil demand is set to rise to an all-time high in 2023 as China relaxes its Covid-19 restrictions in a move that may push crude prices higher in the second half of 2023 according to the International Energy Agency (IEA).
China\’s population shrank in 2022 for the first time since 1961 according to its National Bureau of Statistics whilst the Chinese economy grew at the second slowest pace since the 1970s with Gross domestic product expanding by just 3% in 2022, well below Beijing’s official growth target rate of 5.5%, which itself is the lowest target growth rate in decades.
The Cosmos Offer
Of course, currency market volatility can bring trouble but with careful monitoring can also bring opportunity. At Cosmos, we provide our clients with a relationship not a transaction-based service. We are pro-active not reactive.
We offer local collection accounts in the USA, Canada, the EU and of course the UK to save clients further time and money with their transfers.
Cosmos Currency Exchange has won multiple awards for its customer service and pro-active approach.
This week’s quote is from Mark Twain
“Actions speak louder than words but not merely as often.”