Market Report : 17.05.23

Published: 17/05/2023 By ECAP

Sterling failed to find a clear direction yesterday in the wake of employment data that pointed to a cooling labour market. Weaker than expected data weighed on the pound as unemployment unexpectedly ticked higher to 3.9%, and payroll numbers declined. Moreover, the Office for National Statistics revealed that wage growth also slowed, continuing to fall behind inflation. Considering a moderately cooling labour market, Bailey could hint at a pause in the near future, souring demand for sterling. Ultimately, a slowdown in wage growth was one of the two pieces of information the BoE needed to pause its tightening cycle in June, the second one will be a deceleration in inflation – data which will be released on the 24th of May.

The Euro opened this morning’s trading session in a cautious manner ahead of the release of eurozone inflation figures for April. The session’s main economic data will be the final eurozone consumer inflation figures, which are expected to show that prices remained elevated. Nevertheless, European Central Bank policymakers have been very confident of solid demand and labour shortage in the Eurozone. Therefore, the need for more interest rate hikes is warranted as inflation is far from the desired levels. Ultimately, market participants are anticipating more than one interest rate hike from European Central Bank President Christine Lagarde as announced in her last monetary policy meeting.

The dollar held firm this morning, as traders trimmed bets on imminent US rate cuts following yesterday’s solid consumer spending data. Moreover, the greenback also benefitted from its status as a safe-haven so long as risk of a US debt default remained. The looming U.S. debt ceiling deadline and the potential for a catastrophic US debt default has created a degree of nervousness throughout the global markets. Talks between US President Joe Biden and Republican Kevin McCarthy, the speaker of the House of Representatives, failed to come up with a deal yesterday. Ultimately, while Biden warned that any default would land the economy in recession, investors fear the impact globally would be negative, and consequently see the greenback as a safe haven.