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Market Reports 13-05-2022

Published: 13/05/2022 By ECAP

Sterling managed to fare slightly better yesterday, although still fell to fresh May 2020 lows below the 1.22 mark against the greenback. Yesterday morning’s UK GDP figures were partly to blame, although the reaction in the pound was muted given the time lag in the data. According to the preliminary data, the UK economy expanded by just 0.8% in the first quarter of 2022. Whilst this would be viewed as strong expansion in pre-pandemic times, this marks the slowest pace of growth in a year and printed below expectations - economists’ were eyeing growth around the 1% mark.

Investors spent much of trading continuing to digest Wednesday’s US inflation print, and its potential ramifications for the global economy. As expected, headline inflation eased in the US last month, although the data once again exceeded expectations (8.3% vs. 8.1% consensus).The news has had two major consequences. Firstly, investors were back ramping up bets in favour of higher Federal Reserve interest rates. Markets now see a reasonable chance of a 75 basis point rate hike at the next FOMC meeting in June, with moves of at least 50 basis points fully priced in for the next two (almost three) meetings.

The data has also heightened concerns that rampant inflation could weigh on the global economy this year, triggering renewed flows into the safe-havens. The US dollar benefited on both accounts yesterday, with almost every other currency incurring pretty heavy losses. Arguably the most noteworthy development was the move lower in EURUSD, which briefly sank below the 1.04 level and just above its weakest position in almost twenty years. While the common currency found a bit of footing during afternoon trading, calls of possible parity in the pair appear to be spooking investors.