Markets Report - 16 October 2023

A daily breakdown of the markets for the 16th October 2023, provided to you by Sterlex.

🇪🇺💶The Euro (EUR) starts the new trading week on a positive foot against the US Dollar (USD), encouraging EUR/USD to extend the rebound from the 1.0500 neighbourhood and regain the 1.0540 zone on Monday. At the same time, those in the financial markets are pondering the possibility of the European Central Bank (ECB) putting a halt to policy modifications, even though inflation levels exceed the bank's target and concerns are growing regarding the potential for a future economic downturn or stagflation in the region. Market participants continued to factor in the likelihood that the ECB’s hiking cycle might have reached a peak against the persistent view that the Fed could maintain its restrictive stance for a longer period than initially anticipated.

🇬🇧💷The GBP/USD pair gains traction above the mid-1.2100s during the Asian session on Monday. The latest data on Monday showed that the UK’s Rightmove House Price Index rose by 0.5% MoM in October versus 0.4% prior. He indicated that interest rates will likely remain around the current 5.25%, given that restrictive policy is required to return inflation to 2%. The major pair currently trades around 1.2160, up 0.15% for the day. On an annual basis, the figure dropped by 0.8% from the 0.4% decline in the previous reading.

During his remarks at the International Monetary Fund meetings in Morocco on the weekend, Bank of England (BoE) Governor Andrew Bailey stated that rising borrowing costs were affecting the housing market and employment. The risk sentiment dominate the market ahead of the key UK employment data and US Retail Sales on Tuesday.

🇺🇸 🏦The greenback, in terms of the USD Index (DXY), comes under some modest downside pressure following Friday’s weekly highs near the 106.80 level on Monday.as last seen rising more than 1% on the day at 4.68%. The index gives away part of the recent two-day recovery to the vicinity of 106.80 on the back of a so far decent rebound in the risk-linked galaxy at the beginning of the week.

Despite the index reclaimed part of the ground lost since the beginning of the month during the latter part of last week, the dollar has been losing momentum in tandem with the renewed dovish tone from Fed speakers. In addition, despite the assumption that the Federal Reserve's tighter-for-longer policy remains in place for the time being, the possibility of another rate rise before the end of the year appears to have reduced recently.

Furthermore, escalating geopolitical concerns stemming from the Middle East and its associated pick-up in the risk aversion continue to be a source of potential strength for the dollar.