Markets await key US CPI data, large Scale protests outside the Knesset over judicial reform plans, UK jobs data mounts pressure on BoE to deliver further rate hikes.
February 14, 2023
GBP/USD 1.2174 GBP/EUR 1.1323 EUR/USD 1.0752 USD/CAD 1.3339 EUR/CHF 0.9859 EUR/SEK 11.0934 EUR/NOK 10.8335 EUR/DKK 7.4507 USD/ILS 3.5064 AUD/USD 0.6966 NZD/USD 0.6335 USD/SGD 1.3264 USD/JPY 132.01 USD/CNH 6.8199 USD/INR 82.7413 EUR/ILS 3.7699 GBP/ILS 4.2685 USD/ZAR 17.8402
Sterling opened the morning with a bound of optimism as jobs data released earlier indicated a robust labour market, with the unemployment rate holding steady at 3.9%. Wage growth beat expectations, increasing pressure on the Bank of England to deliver another interest rate hike when they meet next month.
Market focus now shifts to CPI data due for release tomorrow, as the population braces for an update on the central bank’s quest to tame inflation. Monday saw sterling gain a cent against its US counterpart, while the FTSE 100 closed the day in positive territory.EUR
EURUSD could be bolstered if the US CPI print comes in close to expected levels, as the focus is shifted back to euro rates which have been steadily climbing off the back of a hawkish rhetoric from European Central Bankers.
As the ECB has embarked on its most aggressive tightening cycle in its history, the correlation between risk-free rates and real lending rates points to more pain to come. Since December 2021, risk-free rates have increased by 2.9% meanwhile real lending rates have only increased by 2.0%. This could pose significant downside risk to businesses and consumers as borrowing costs continue to creep higher.
The Euro gained through yesterday, finding support at the 1.0660 handle to rebound to 1.072 by the end of the day. The Stoxx 50 has opened up 0.26% as we print.USD
The path to lower inflation may not be as smooth as some at the FOMC anticipate. The US Consumer Price Index, due to be released today, is expected to rise 0.5% through January, fuelled by higher gasoline prices. Even when removing the price volatility from Food and Energy, the Core CPI is expected to advance by 0.4% for a second month. Any upside surprised could support the greenback, as markets continue to adjust and heed the Federal Reserve’s forward guidance that higher rates are here for longer.
Joe Biden has decided to announce Fed Vice Chair Lael Brainard as his top economic advisor, joining previous prominent Fed official Janet Yellen in Biden’s top team. The white house hopes this will help with taming inflation and throughout the 2024 election.
The dollar trades slightly lower down 0.16%, with the DXY currently supported at the 103 handle. Yesterday proved a good day for US equities, with the NASDAQ and S&P500 finishing 1.48% and 1.14% higher respectively.ASIA/PACIFIC
Singapore’s Deputy prime Minister Lawrence Wong delivered the annual budget. At a high level, the budget expects a slight budget deficit, as the state budget aims to help people with rising prices.
India’s inflation will probably strengthen the view that the RBI needs to raise rates further. January’s gauge showed the headline figure move beyond the RBIs 2-6% target once again. Inflation surged to 6.5% YoY in January from 5.7% the month prior.
Japan aims to incentivise industrial giants to invest in start-ups and new technology using tax reforms. To add to this the government is providing funds to help bridge the gap between research and commercialisation, effectively removing barriers for start-ups.ILS
Constitution fears continue to dominate headlines, with reports of more than 70,000 people attending the demonstration held outside the Knesset yesterday as protestors vent their opposition to plans to curb judiciary powers.
USDILS was met with resistance yesterday as it tried to break the key 3.55 level. The move was relatively short-lived as a late selloff in the greenback saw the rally fade, with USDILS opening the morning back at the 3.51 handleData & Events
Euro-Area 4Q GDP, Employment
US Jan CPI
US Jan NFIB Small Business Optimism
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