Market Report : 26.01.23

Published: 26/01/2023 By ECAP

Fears of economic slowdown in the UK escalated this morning amid downbeat prints of the British business sentiment index shared by Bloomberg. The Institute of Chartered Accountants in England and Wales said that its latest monitor of business sentiment dropped to an index reading of -23.4, the weakest since 2009. Looking forward, many analysts have noted that the anxiety ahead of the next week’s bumper calendar, comprising multiple key central bank meetings, also seems to be weighing on sterling. Markets are likely expecting too much tightening from the BoE this year: the central bank looks set to extend the run of rate hikes to ten straight BoE gatherings. However, analysts anticipate that the current 102-basis point hikes priced for 2023, with a a terminal rate of almost 4.50%, remains too aggressive and could weigh on both the UK economy as well as the pound.

The Euro continues to receive support from European Central Bank’s officials who talk about the need to continue rising interest rates significantly. The latest round of economic data favours that perspective as Eurozone PMIs surpassed expectations. However, the Euro see-sawed back and forth during yesterday’s trading session as it seems like the bloc’s single currency is running out of momentum. Ultimately, it would take quite a good deal of positive news to push another big idiosyncratic Euro rally. Nevertheless, the effective pushback by ECB officials against speculation around a 25-basis point hike is likely limiting downside risks for the bloc’s single currency.

The dollar held close to an eight-month low against its peers this morning, as a gloomy U.S. corporate earnings season stoked recession fears and as traders stayed on guard ahead of a slew of central bank meetings next week. The U.S. dollar index inched 0.1% higher to 101.65, after falling as low as 101.52 earlier in the session. Downbeat earnings and guidance from U.S. companies and a string of tech sector layoffs have deepened fears of a sharp economic downturn in the United States. This lead investors to pare back expectations on how much longer the Federal Reserve will need to aggressively raise interest rates. With the Fed no longer leading the charge on interest rate hikes and U.S. economic trends set to worsen, many analysts believe the U.S. dollar has entered a period of cyclical depreciation against most foreign currencies.