ECB and BoE each hike by 0.5%, GBP and EUR selloff as central banks near peak interest rates. Powell’s attempt to convince markets misses mark.
February 3, 2023
Rates are not real time. Rates are today's indicative mid-market rates as of time of publishing, which may vary. Please contact SVB for a current quote.
GBP/USD 1.2212 GBP/EUR 1.1192 EUR/USD 1.0911 USD/CAD 1.3356 EUR/CHF 0.9978 EUR/SEK 11.3164 EUR/NOK 10.9756 EUR/DKK 7.4439 USD/ILS 3.4035 AUD/USD 0.7056 NZD/USD 0.6465 USD/SGD 1.3116 USD/JPY 128.64 USD/CNH 6.7480 USD/INR 81.9963 EUR/ILS 3.7134 GBP/ILS 4.1561 USD/ZAR 17.1274
The Bank of England took the decision to raise interest rates by 0.5% yesterday. The MPC vote split was 7-2 with 2 voting for no increase. In the guidance provided the Bank of England suggest that they are approaching their end of its tightening cycle. With yesterday’s hike, the risk is tilted towards a pause in March with markets pricing in 0.16%. By the spring, the Bank of England expected inflation to be falling sharply. GBPUSD sold off because of the forward guidance given by the Bank of England, trading 1.3% lower by the end of the day.EUR
The ECB raised interest rates by 50bps yesterday, broadly in line with expectations. Focus was on Christine Lagarde’s subsequent statement, where she signaled the same hike is “guaranteed” to be repeated in March. The euro came under pressure following the meeting, bouncing off multi-month highs to trade 0.75% lower since the announcement. Despite hawkish comments from the ECB president, traders reacted to hints that the central bank is nearing the end of its rate hike cycle, with rises likely to pause after the next one or two meetings. Lagarde also alluded to continuing inflationary pressures and a slowdown in economic activity likely to “dampen spending and production”. EURUSD trades just above 1.0900 at time of writing.
Services and Composite PMIs climbed across the bloc, with German, French, Italian and Spanish data all surpassing expectations. The same data for the Euro Area ticked higher than market forecasts, printing above the key 50 level. Industrial Production in France also beat market expectations, although fell from December’s levels.USD
Initial Jobless claims remained low, however only a moderate rise in layoffs is expected in the near-term, as redundancies remain isolated to a limited number of sectors including technology which has accounted for 41% of all cuts. A separate report shows job-cut announcements up 440% year-over-year in January, as companies are “preparing for an economic slowdown, cutting workers and slowing hiring”.
Jerome Powell’s attempts to convince markets of the FOMC’s resolve on tightening has missed the mark. Following his statement, the 10-year yield dropped 9 basis points, as markets adjusted their expectations of the Fed’s increasingly dovish monetary policy stance.ASIA/PACIFIC
Australia’s slumping mortgage approvals point to a deeper downturn in the housing market over the coming months. Higher interest rates and larger loan buffers have caused new approvals to plunge by more than 30%. Peaking inflation and deterioration of the housing market may push the RBA to pause after one more hike next week.
In China, declines in credit growth are expected to moderate after the end of covid restrictions. CPI is likely to tick higher due to the unrestrained lunar new year celebrations.ILS
Large global banks are rethinking the risk associated with investments in Israel. With Judicial reform raising concerns over the institutional strength and the investment climate in the country. As a result of USD weakness since the Fed’s Wednesday meeting, USDILS trades near 3.42, almost 1% lower.Data & Events
UK & European PMIs
Eurozone Dec PPI
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