Markets Report - 17 August 2023

A daily breakdown of the markets for the 17th August 2023, provided to you by Sterlex.

🇪🇺💶The Euro (EUR) has managed to regain some stability against the US Dollar (USD) and is now showing signs of gaining momentum for EUR/USD after it dropped to fresh six-week lows around 1.0860 on Thursday. As for the euro schedule, the Balance of Trade figures in the broader euro area for June will be the primary noteworthy release on Thursday. Within the European Central Bank's realm (ECB), internal disagreements among its Council members regarding the continuation of tightening measures after the summer period are causing renewed weakness that is impacting the Euro negatively.

🇬🇧💷The Pound Sterling (GBP) struggles to find a decisive move as the upside seems restricted due to deepening recession woes, while the downside is supported due to expectations of more interest rate hikes from the Bank of England (BoE). Meanwhile, Friday’s Retail Sales data is expected to demonstrate a slowdown in consumer spending momentum due to wet weather. The release of the entire economic indicators will provide lucid guidance to investors about further policy action. The GBP/USD pair trades inside Wednesday’s range as investors await British Retail Sales data for July. Core inflation is marginally lower at 6.9% than its recent peak of 7.1%, which indicates that UK PM Rishi Sunak could fail to fulfill his promise of halving inflation to 5%. Bets in favor of a hawkish BoE interest rate decision for the September policy meeting rose sharply as the United Kingdom’s strong wage growth and stubborn core inflation makes further policy tightening more necessary.

🇺🇸 🏦The greenback, when tracked by the USD Index (DXY), maintains the bullish stance well in place and advances to new multi-week highs around 103.60 ahead of the opening bell in the old continent on Thursday. The prevailing feeling among the majority of participants was that, due to the risks associated with inflation, it might be necessary to raise interest rates further. Further strength in the buck also appeared following the publication of the FOMC Minutes late on Wednesday. They noted that the current level of inflation was considered too high and believed that additional proof was needed to be confident that the pressures driving prices upward were truly diminishing. The resilience of the US economy, as seen in recent results from key fundamentals, sustains that view despite current disinflationary pressures and some cracks in the (still tight) labour market. On this, most of the participants shared the opinion that there are significant potential risks that could lead to higher inflation. The so far multi-week rally in the dollar appears well propped up by the equally strong rebound in US yields across different maturities, all against the backdrop of rising speculation that the Federal Reserve might keep its restrictive monetary stance for longer than initially anticipated.