Market Report : 17.04.23

Published: 16/04/2023 By ECAP

The UK is to release February employment data tomorrow, followed by March inflation data a day later, which could determine whether Bank of England officials decide to hike interest rates by another 25-basis points at their meeting next month. Looking back, inflation unexpectedly rose to 10.4% in February which cemented the case for March's rate hike. For now, economists expect inflation to return to single digits in March, but this would still be well above the rate of inflation seen in the US and Europe. Ultimately, while Britain’s economy has managed to avoid a recession, growth has stagnated over the past year, markets anticipate the BoE will hike interest rates next month to 4.5% from 4.25%, which would be its twelfth consecutive rate increase since December 2021.

The Euro seems to be consolidating its recent gains as traders seek more clues on the direction of the bloc’s single currency amid a sluggish Monday morning in Europe. Adding strength to the Euro's rebound could be the continued hawkish comments from European Central Bank officials. In fact, the market’s pricing of the ECB’s 0.25% rate hike and the policymakers’ resistance to utter policy pivot or rate cut has cemented the ECB as one of the most hawkish central banks. Looking forward, ECB President Lagarde is scheduled to speak one more time in the day. However, major attention will be given to this week’s PMIs on Friday to reconfirm the economic recovery hopes, as well as prod the hawkish Fed bets and the latest falling prices.

The US dollar edged higher in overnight trade, bouncing off last week’s one-year low after strong earnings from some of Wall Street’s banking giants diluted concerns about the sector, raising expectations of another interest rate hike by the Federal Reserve. The dollar index, which tracks the greenback against a basket of six other currencies, traded slightly higher at 101.36. Nevertheless, the index posted its fifth straight weekly loss on Friday, when it fell to a new one-year low of 100.78 in the wake of the US producer prices index recording the biggest drop since the start of the pandemic. Ultimately, with inflation cooling quickly and the Fed policy makers expressing concerns that weakness in the banking sector could result in a “mild recession” this year, traders are starting to factor in a pause in the central bank’s rate-hiking cycle in May.