Markets Report - 13 September 2023

A daily breakdown of the markets for the 13th September 2023, provided to you by Sterlex.

🇪🇺💶The European Central Bank (ECB), market discussions seem to lean towards a pause after Thursday's meeting and an additional quarter-point rate raise by year-end, given the current state of a somewhat divided Council. The implication here is that, based on these forecasts, the ECB would likely be more hawkish and supportive of the Euro. The Euro (EUR) appears offered against the US Dollar (USD) after Wednesday’s opening bell in the old continent, prompting EUR/USD to trade with slight losses in the mid-1.0700s. Looking at the euro docket, Industrial Production readings for the broader eurozone will be the sole release later on Wednesday. Across the ocean, the usual weekly Mortgage Applications measured by MBA and the EIA’s report on crude Oil inventories are also due, apart from the key US CPI prints. There are many moving parts to Thursday’s meeting. However, the biggest part should be a 25 bps rate hike – which is only 54% priced – and a factor that should see EUR/USD hold support down at 1.0700. The Euro received a little support overnight on a Reuters report that the new European Central Bank staff projections being released tomorrow would forecast CPI above 3% next year, compared to expectations of 2.7%.

🇬🇧💷The Pound Sterling (GBP) remained offered on Wednesday as the UK’s Office for National Statistics (ONS) reported that the economy shrank by 0.5% in July and factory activities contracted significantly due to a deteriorating demand outlook. Sarah Breeden, who will replace the BoE’s Jon Cunliffe for Deputy Governor in November, also said that risks to inflation are skewed to the upside. The GBP/USD pair witnessed an intense sell-off as higher interest rates by the Bank of England (BoE) triggered an economic slowdown and firms remain reluctant to full-capacity utilization.

After significant layoffs and weak factory activities in July, it is evident that the UK economy is failing to absorb the burden of restrictive monetary policy. Meanwhile, strong wage momentum has boosted upside risks to inflation and warrants more interest rate hikes from the BoE to contain the highest inflation among G7 economies.

🇺🇸 🏦USD Index (DXY) keeps targeting 105.00 and above. In the meantime, investors are expected to closely follow the release of US inflation figures for the month of August, where the headline CPI is seen ticking higher vs. The so far daily advance in the dollar comes amidst a tepid recovery in US yields across the curve – with the 2-year yields already surpassing the 5% threshold – and firm speculation that the Federal Reserve might start cutting interest rate at some point in Q2 2024. The index continues to reclaim ground lost in response to the sharp pullback seen at the beginning of the week. Additionally, usual weekly Mortgage Applications tracked by MBA are also due ahead of the EIA’s report on US crude oil inventories. a drop in the Core CPI.