Markets Report - 09 August 2023

A daily breakdown of the markets for the 9th August 2023, provided to you by Sterlex.

🇪🇺💶Following two consecutive sessions of losses, the Euro (EUR) has managed to regain its composure and overcome some of the recent pessimism against the US Dollar (USD). This has resulted in EUR/USD showing resilience and attempting to surpass the psychological barrier of 1.1000 on Wednesday. In the broader context of monetary policy, there have been no notable changes. Investors still anticipate that the Federal Reserve will maintain its current interest rates for the rest of the year, while the European Central Bank (ECB) is facing internal divisions within its Council regarding the continuation of its tightening measures after the summer.

🇬🇧💷A bleak outlook for the UK economy undermines the British Pound (GBP), which turns out to be a key factor that prompts some intraday short-covering around the EUR/GBP cross. This comes after a report from the British Retail Consortium showed on Tuesday that UK Retail Sales in July registered its weakest year-on-year growth since August 2022. In fact, the National Institute of Economic and Social Research (NIESR) said that there was a 60% risk of the government going to the polls during a recession. Furthermore, the Recruitment and Employment Confederation (REC) said on Monday that British employers reduced the number of new permanent staff they hired through agencies by the most since mid-2020. In its quarterly update, the NIESR added that it would take until the third quarter of 2024 for UK output to return to its pre-pandemic peak. The lack of domestic events in the UK has helped an unusual period of very stable BoE rate expectations: markets appear rather anchored to the prospect of a peak rate around 5.70-5.75% for now. This, along with the Bank of England's (BoE) less hawkish forward guidance, continues to undermine the GBP.

🇺🇸 🏦The US Dollar (USD) is a touch lower after its roaring performance on Tuesday. This release will get some additional attention as Western Texas Intermediate (WTI) crude price went on a wild ride on Tuesday, by first dropping 3.10% during the European session and then rallying 4% during the US trading session. A mix of events – with lacklustre import/export data out China together with resparked recession fears, and the 40% tax on profits for Italian banks – served a risk averse cocktail which fueled the rally in the Greenback across the board in every major G10 pair. On the economic front, a light release calendar is on the cards, with only the weekly Mortgage Applications numbers expected. From the commodity side, the US Energy Information Administration (EIA) will release Crude Oil and derivatives numbers. The very light economic calendar and the US Consumer Price Index (CPI) numbers on Thursday will see traders sitting on their hands for Wednesday in order to keep their powder dry for the main event.