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Market sentiment improves

Daily Currency Update

Flash CPI data from the Eurozone yesterday showed annual inflation is expected to be 8.5% in February 2023, down from 8.6% in January according to data from Eurostat. Food, alcohol, and tobacco are expected to have the highest annual rate in February, followed by energy. Markets are now fully pricing in a 50-basis point hike by the ECB in two weeks and this sentiment continued when President Christine Lagarde said on Thursday that more interest-rate increases may be needed to combat inflation still at highly elevated levels. US jobless claims edged lower yesterday, decreasing from 2,000 to 190,000 in the week ending February. A fourth consecutive fall shows signs of a strong labor market. However, it was Atlanta Federal Reserve President Raphael Bostic that took some of the US headlines yesterday stating he favored a slow and steady approach to interest hikes, arguing for a hike of 25 basis points later this month. It is believed that other members of the Fed may be voting towards a 50-basis point hike. GBP/USD is a little stronger this morning after touching weekly lows of 1.1925. The currency pair make a break for 1.2000 at the time of writing. GBP/EUR has traded within a very narrow range in the past 24 hours between 1.1250 and 1.1285. Movement this morning is at the top side of this range.

The final services PMI data for the largest countries of the eurozone, and the US, are scheduled for release today and are expected to point to expansion. The outcome of these releases will determine whether the positive sentiment overnight continues into the weekend.

Key Movers

Activity in China's services sector expanded at the fastest pace in six months in February, suggesting a robust recovery is well underway. The Caixin/S&P Global services purchasing managers' index rose to 55.0 in February from 52.9 in January, as the sector expanded in the two months after the government ended its restrictions to combat the spread of COVID. The news will come as a relief to market participants as China is an important export market globally. The news is one of the reasons for the positive market sentiment overnight and supported market participants to sell the safe haven USD and look at riskier assets. People tend to buy the USD in times of market uncertainty. GBP/USD has picked up overnight and EUR/USD also picks up from recent lows. The Australian dollar, which is deemed a riskier asset, has gained against each of the GBP, EUR, and USD.

Expected Ranges

  • GBP/USD: 1.1920 - 1.2080 ▲
  • GBP/EUR: 1.1250 - 1.1340 ▲
  • GBP/AUD: 1.7620 - 1.7810 ▼
  • EUR/USD: 1.0580 - 1.0690 ▲