Market Report : 21.04.23

Published: 21/04/2023 By ECAP

Sterling slumped this morning after UK retail sales fell by a greater than expected 0.9% in March, with British consumers affected by an elevated inflation rate which stayed in double digits last month. Many analysts are starting to believe that the renewed decline in retail sales in March could prove that the recovery in January and February was a false hope. Ultimately, the soft retail sales data is unlikely to dissuade the Bank of England from raising interest rates again in May as it follows wage and inflation figures that beat estimates earlier in the week.

The Euro continues to see-saw back and forth against a basket of currencies as this morning’s preliminary PMI data provided a mixed bag of results. The German manufacturing sector’s contractions deepened in April while the services sector outperformed. The Manufacturing PMI in Eurozone’s economic powerhouse came in at 44.0 this month vs. 45.7 expected. Meanwhile, Services PMI jumped from 53.7 in March to 55.7 in April – reaching yearly highs. Although the manufacturing surveys are seen stuck in contraction territory, the services sector remains robust, adding to inflationary pressure. Nevertheless, ECB President Christine Lagarde said the European Central Bank's monetary policy "still has a bit of way to go" to bring back inflation towards its 2% goal, implying more rate hikes ahead.

The US dollar edged higher in the early European trade this morning on growing expectations that the Federal Reserve will tighten monetary policy further next month. The Dollar Index was trading at 101.72, and was on course for a weekly gain of around 0.3%, after five straight weeks of losses. Commentary from a number of Fed policymakers this week has pointed to the US central bank raising interest rates by 25-basis points in early May, judging that inflation is still at problematic levels and monetary policy needs to be tightened. That said, this could be the last increase of the cycle as economic data suggests a slowing US economy, and money markets are pricing in rate cuts as early as July through to the end of the year. Flash US PMI figures for April are due later today, which will provide further clarity on the overall economic health of the largest economy in the world.