Market Report : 23.02.23

Published: 23/02/2023 By ECAP

Sterling was provided with some much needed support as rising bets for additional interest rate hikes by the Bank of England act as a tailwind. In addition, a slight improvement in the global risk sentiment – as depicted by a generally positive tone around the equity markets – seems to be lending further support. Nevertheless, investors remain worried about economic headwinds stemming from rapidly rising borrowing costs. This, along with geopolitical tensions, should keep a lid on any optimism in the markets. Looking forward, in the absence of any relevant UK economic data, the fundamental backdrop will push traders to look into the US economic docket.
The Euro seems to be consolidating its recent losses as investors digest the latest Federal Reserve minutes ahead of key Eurozone inflation data. The final read of Eurozone’s January CPI is due later in the session and is expected to see an upward revision to 8.6% on the year, from the previous month's 8.5%. Meanwhile, heightened risks of rising energy prices feeding into stronger inflation in the Eurozone could help the Euro hold its ground in the short term as such a development would force the European Central Bank to continue to raise rates after March. Christine Lagarde, the president of the European Central Bank, reaffirmed last week the central bank’s intention to raise borrowing costs by another half-point next month, and further hikes into the early summer look very likely.

The US dollar slipped lower in early European trade this morning but remained near its recent highs after the minutes of the Federal Reserve's latest meeting pointed to more rate hikes ahead. The minutes from the Fed's February meeting stated that most of the officials supported the quarter-point increase because a slower pace "would better allow them to assess the economy's progress" toward reducing inflation to their 2% target. However, it's clear some policymakers favoured a larger 50-basis point increase and the meeting occurred before the release of the blockbuster January jobs report which suggested a recession was not remotely close. Looking forward, the US Bureau of Economic Analysis will release its second estimate of the fourth-quarter GDP, which is expected to match the initial estimate of 2.9% (YoY). Furthermore, weekly initial jobless claims will also be featured in the US economic docket.