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Market Report : 08.12.22

Published: 08/12/2022 By ECAP

The pound, as well as financial markets, remain choppy this morning as we move into the second half of the week amid a lack of fundamental drivers and high-tier data releases. Market participants remain on the side-lines ahead of next week's key central bank announcements. Furthermore, major currency pairs struggle to make a decisive move in either direction. Ultimately, the lack of economic data on the UK front keeps the Pound adrift to US Dollar dynamics. Moreover, the UK economy is “likely” already in recession, and a gloomy outlook with labour shortages, wage inflation, Brexit jitters, and weak investment, could hurt the prospects for further sterling gains.

The euro continues to find support and seems to be consolidating its recent gains on signs that Europe's economic downturn may not be as bad as previously feared. Nonetheless, European stock markets are expected to trade in a mixed fashion today, with investors fretting about the state of the global economy ahead of next week’s crucial central bank meetings. European investors are likely to retain a state of nervousness as the week comes to an end, having been rattled by downbeat comments from financial titans predicting a global recession in 2023. There is little on the European economic calendar today, but appearances by assorted central bankers, including ECB president Christine Lagarde, will be studied carefully for further insight on next week’s policy outcome.

The U.S. dollar clawed back some of the previous day's declines this morning as investors weighed the outlook for Federal Reserve policy amid simmering fears that high interest rates could spur a recession. The U.S. dollar index – which gauges the greenback versus six counterparts – ticked up to 105.33 in the Asian session, bouncing after a 0.42% slide overnight, its first decline since last Friday. While investors have been anticipating the Fed will soon slow its tightening pace, recent upbeat U.S. employment, services and factory data have added to investor uncertainty over the policy outlook. Ultimately, money markets price 91% odds that the policy-setting Federal Open Market Committee will raise rates by half a point next week, with just 9% probability for another 75-basis point increase. Moreover, rates are now seen peaking at just below 5% in May 2023.