Market Report : 09.06.23

Published: 08/06/2023 By ECAP

Sterling continues to trade in a narrow range amid a lack of major economic data. A thin trading calendar has left sterling susceptible to market sentiment. For now, the pound is holding onto modest gains from elevated rate hike bets. With the market now pricing in the BoE to raise interest rates to 4.75% from 4.5% at the June meeting, investors remain buoyed. Furthermore, odds sit at a 60% chance of further tightening to 5.5% later this year. Despite inflation cooling, headline CPI still fell less than expected, and core prices surged to a 31-year high. Ultimately, amidst a continued lack of economic data, the pound will be left to market sentiment. However, elevated rate hike bets could keep sterling afloat ahead of labour market and GDP data next week.

The Euro struggled to hold its ground yesterday as the final version of Eurozone GDP figures for the first quarter of 2023 marked a downward revision to -0.1% QoQ, versus 0% expected. Moreover, the yearly GDP figures also eased to 1.0% from 1.3%, versus 1.2% expected. In turn, recessionary fears have been growing as Germany also reported a negative growth figure for Q1 2023.  Looking forward, ECB Vice President Luis de Guindos is due to speak at an event in Madrid later in the session. Traders will be seeking guidance ahead of the European Central Bank’s policy-setting meeting next week, although the central bank is widely expected to hike once more. Ultimately, according to a clear majority of economists polled by Reuters, ECB President Christine Lagarde will hike its key interest rates by 25-basis points on June 15th and again in July before pausing for the rest of the year.

The US Dollar stabilised in early European trade this morning after the previous session’s sharp losses as traders sought out a safe-haven following weak Chinese inflation data. However, this bounce in the US currency came after hefty losses in the previous session as weak employment data pointed to a pause in the Federal Reserve’s year-long rate-hiking cycle. Moreover, yesterday’s data showed that the number of Americans filing new claims for unemployment benefits surged to the highest in more than 1½ years last week. With signs of the labour market weakening, next Tuesday’s release of the latest consumer prices index, for May, looms large as it comes out just before the central bank officials get together to make their decision on interest rates. For now, the greenback is down 0.6% for the week and is set for its worst week since mid-March.