The governor of the Bank of England has indicated that the UK recession may have already concluded, citing "distinct signs of an upturn." Andrew Bailey stated that, compared to historical standards, this recession is notably weak, despite the 0.3% contraction in Q4 of 2023. Although the Bank signaled no immediate interest rate cut, there is a possibility of rate cuts before inflation reaches the 2% target, given "encouraging signs" of easing price pressures. Additionally, the UK has posted its largest January budget surplus in at least 30 years, providing a positive assessment of public finances ahead of the upcoming budget.
On the contrary, Germany, the economic powerhouse of Europe, is facing economic challenges, with the Bundesbank warning of a looming recession. External demand weakening, cautious consumer behavior, and rising borrowing costs are identified as contributing factors. The conflict between Russia and Ukraine has led to four consecutive quarters of stagnant or negative growth in Germany, posing significant challenges for the broader Eurozone.
In the Eurozone, collective wage growth has slowed for the first time in 18 months, with a 4.5% increase in the last quarter of 2023. However, economists believe this decline is unlikely to alleviate concerns about high inflation among rate-setters.
Meanwhile, the US economy exceeded expectations in the final months of the previous year, driven by strong household and government spending. The annual growth rate for the fourth quarter was 3.3%, down from the previous quarter but higher than the anticipated 2%. For 2023, the US economy grew at an annual rate of 2.5%, a significant increase from 2022.
The US currently enjoys job abundance, consumer confidence, and robust spending, leading to record-breaking stock levels and a strong dollar. However, relying on the US as a global growth engine poses risks for other nations and the US itself. China continues to grapple with a real estate slump, and foreign investors have fled amid a stock market decline, resulting in a $7 trillion loss since early 2021. Prices have fallen for three consecutive quarters, marking the longest deflationary streak since the late 1990s Asian financial crisis.
GBPUSD has remained in a tight range over the past week. The pound initially dropped to around 1.2550 after the GDP data, however the BOE comments helped it retrace to around 1.2670. The pair has now flattened and resides at 1.2615.
GBPEUR has experienced similar tight trading, the pair briefly dropped to 1.1670 from 1.1740, and now reside at 1.1680. EURUSD has also remained within about a 0.9% range between 1.0720 and 1.0820, currently the pair reside at 1.0790.
