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China reopens its borders

Monday 9 January, 2023

Daily Currency Update

Sterling came under pressure early on Friday after the monthly Halifax House Price Index showed a -1.5% drop in house prices, the fourth consecutive drop in a row. This is the first time we have seen four consecutive falls since 2012 with only three consecutive falls seen during the COVID-19 pandemic. Sterling hit fresh lows against both the USD and EUR over the morning session, touching 1.1850 and 1.1280 respectively before recovering in the afternoon. European data showed flash December inflation dropped to 9.2% y/y from 10.1% y/y in November, which is lower than expected a few weeks ago. Core inflation rose a tad to 5.2% y/y in December from 5.0% y/y in November. US data on Friday boosted global sentiment with a blend of solid U.S. payroll gains, slower wage growth, and a sharp fall in service-sector activity. US data continues to increase the expectancy that the Federal Reserve will again slow its interest rate hikes when its next meets in February. UK data is thin on the ground this week with the only key release expected on Friday – GDP m/m. Outside of this, we expect US CPI data on Thursday with month-on-month expected to fall 0.1% to 0.0% and year-on-year to drop from 7.1% down to 6.5%. This morning, GBP/USD opens back above 1.2000 and sits a little higher than 1.2150. GBP/EUR has just tried to break back above 1.1400.

Key Movers

Global sentiment has been boosted as Beijing dropped pandemic border controls on Sunday, opening its perimeter that had been all but shut since the start of the COVID-19 pandemic. Not only will the news boost local economic activity but will also have a wider impact given China’s importance as an exporter. The news alongside US data on Friday - solid U.S. payroll gains, slower wage growth, and a sharp fall in service-sector activity – has seen market participants sell the US dollar as a safe haven. The US dollar is normally bought as a safe haven during times of global market concerns. EUR/USD nearly broke 1.0700 overnight and GBP/USD is back above 1.2150. The Australian dollar’s movement against the US dollar is always a good gauge of whether market participants have become ‘risk-on’ and the currency pair trades just under 0.7000 for the first time since August last year.

Expected Ranges

  • GBP/USD: 1.2030 - 1.2280 ▲
  • GBP/EUR: 1.1300 - 1.1450 ▲
  • GBP/AUD: 1.7500 - 1.7620 ▼
  • EUR/USD: 1.0540 - 1.0710 ▲