Market Report : 07.03.23

Published: 07/03/2023 By ECAP

Sterling rose in early European trade this morning after data from mortgage lender Halifax showed that UK house prices rose 1.1% in February, the quickest monthly pace since June. This points to resilience in the country's property market that may prevent a deep economic decline, and help with the difficulties associated with negative equity as interest rates rise. However, with the UK calendar devoid of notable appointments until tomorrow’s speech by the Bank of England's Swati Dhingra, much about this week's price action is likely to depend on market appetite for news releases from around the world.

The Euros appreciation continues for the third straight session against the US dollar, as well as a basket of currencies, hitting two-week highs on bullish remarks by ECB officials. Chief economist Philip Lane warned that underlying price pressures appear to be strong and that the price shocks from the pandemic and the war in Ukraine are only unwinding gradually, but remain stubbornly sticky. This, in turn, bolstered the case for multiple rate hikes after the expected 0.5% hike in March. Lane, one of the more dovish voices on the ECB's council, made his comments less than a week after data showed core inflation accelerating to 5.6% on the year in February – nearly three times the ECB's 2% target.

The US dollar continues to slip lower in early European trade this morning ahead of a testimony by Federal Reserve Chair Jerome Powell before US Congress. Powell begins his two-day testimony before congress later this session, starting with the Senate Banking Committee, and is likely to provide more cues on the Fed's monetary policy for the coming months. Resilience in the jobs market and stubborn inflation have prompted a number of Fed policymakers to call for more interest rate increases, keeping the policy rate higher for longer. However, traders noted that Powell mentioned "disinflation" at his last press conference and are wary that he may try to temper the overall hawkish tone to provide the Fed with more flexibility to pursue the policies it deems necessary.