In a recent survey conducted by the British Chambers of Commerce (BCC), a concerning trend has emerged, revealing that business confidence in the UK has plummeted to its lowest level since the mini-budget crisis over two years agoThis decline reflects mounting fears regarding the current Labour government's intentions to increase taxesChancellor Rachel Reeves announced plans to raise taxes and implement another increase in the minimum wage during last October’s budget, leading most businesses to anticipate price hikes in the coming months.

The BCC pointed out that the business environment is “weak,” with more companies reducing investment than those increasing it over the past three monthsThese findings pose a significant challenge for Reeves, as she is eager for businesses to boost their investments to invigorate economic growthSince the Labour Party's overwhelming victory in the July elections last year, the UK economy has stagnated, primarily due to fierce opposition from businesses concerning a £40 billion tax hike plan, which includes a £26 billion national insurance payroll tax on employers.

Shevaun Haviland, the BCC's Director-General, stated, “The worrying impact of the budget is evident in our survey data

Under the ongoing pressures of rising costs and taxes, business confidence has significantly declined.” This statement summarizes the deep-seated anxiety gripping UK businessesIt highlights a sentiment that resonates beyond mere statistics, echoing a broader unease about the current economic climateCompanies, faced with increased costs and an uncertain tax environment, are understandably hesitant to commit to investments that could bolster economic recovery.

Meanwhile, the euro has begun the year on a weak note, with hedge funds forecasting that the euro-to-dollar exchange rate might plunge to parity or even lower in the forthcoming monthsTraders have reported that as the euro dipped to its lowest value against the dollar since November 2022, both European and American leveraged funds adjusted their positions in euro optionsThe gloom stems from investor anxiety regarding the prospects of economic growth in Europe and potential tariff increases from the United States.

If the growth outlook in the eurozone continues to deteriorate, it could exacerbate the selling pressure on the euro, which remains one of the most liquid assets

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Christopher Wong, a strategist at OCBC Bank, remarked, “The risk balance for the euro is indeed skewed to the downside, especially following the breach of option barriers around the 1.03 level.” He further noted that the deceleration in growth momentum within the eurozone has heightened market expectations that the European Central Bank may need to either increase the frequency of rate cuts or widen the scale of those cuts to support the economy.

Today’s focus will be on various data releases, including the January Sentix investor confidence index for the eurozone, the final services PMI for December in the UK, the initial year-on-year inflation rate for December in Germany, and revised reports on US durable goods orders and factory orders for NovemberThese figures are crucial, as they provide insights into economic trends and investor sentiment across major economies.

Turning to the dollar index, it experienced fluctuations last Friday, closing slightly lower at around 108.90. Profit-taking was the primary driver for the dollar’s retreat from a 26-month high

Nevertheless, the positive economic data from the US and a cooling of expectations for Federal Reserve rate cuts helped to limit the dollar's declineAs the market eyes pressures around the 109.50 mark today, support can be found closer to the 108.50 level, which may act as a cushion against further drops.

In the foreign exchange market, the euro's performance has been closely monitoredLast Friday, it displayed a steady upward trajectory, with the daily close showing slight gains around the 1.0310 markThe tug-of-war between buyers and sellers continues, as previous bearish positions are being unwound amid a subtle shift in market sentimentA surge of buy orders has pushed the euro market upward, as positive German economic data, marked by a rebound in manufacturing orders and increased service activity, has potentially provided a robust underpinning for the currency.

Yet, challenges persist

The lessening expectations of Federal Reserve rate cuts have renewed the dollar's attractiveness, imposing additional pressures on the euroAt the same time, expectations regarding a potential easing of monetary policy within the eurozone continue to rise, leading investors to worry that loose monetary policy will erode the euro’s valueThis dual expectation creates a restrictive environment for any significant rebound in the euro's price, with the 1.0400 level presenting a formidable barrierShould this level be successfully breached, it could open the door for further gains, but failure to maintain above 1.0200 would signal a potential downturn.

As for the British pound, there was a note of stability last Friday, as it consolidated within a small range, edging up to approximately 1.2440. While short-covering has provided some support to the currency, the retreat of the dollar from its recent highs has similarly acted to bolster the pound