The EUR gained yesterday following a report by Reuters that the ECB will discuss plans on how to tackle excess liquidity in the banking system, in a move to tighten monetary policy further. Other than that, market activity was pretty quiet aside from oil prices which continue to rise, with Brent crude trading towards $100 per barrel - this raises risks of a second round of inflation.
* Daily move - against G10 rates at 7:30am, 19.09.23
** Indicative rates - interbank rates at 7:30am, 19.09.23
Today could well play out like yesterday, where markets will be quiet before we see the bulk of market moving data over the next few days with UK inflation numbers, the Fed meeting, BoE meeting, and PMI numbers. Markets appear to be nervous on GBP going into tomorrow’s inflation numbers and the BoE meeting on Thursday, so we expect little volatility on the currency today.
Demand for USD continues to build in anticipation that the Fed will put on a hawkish tone tomorrow evening, which will not just raise expectations for another hike in November, but will also dampen global risk appetite and make USD attractive as a safe-haven. The other factor for USD strength has been the recent rise in oil prices due to the US being a net exporter of oil, as well as rising oil reinvigorating inflation pressures. Worth noting as well that a rise in oil prices will also raise stagflation concerns in those economies already struggling with economic growth, and thus could well put further pressures on those currencies.
Today we will get final inflation readings from Europe and Canada’s inflation readings.
The recent rise in oil prices will once again bring in inflationary pressures across the world. Those economies already struggling with economic growth will likely feel further stagflation pressures and thus weaken their respective currencies. The USDon the other hand is fairing a whole lot better given the fact that the US is a net exporter of oil, and also the rise in energy prices is further solidifying the prospect of higher interest rates for longer in the US. At the start of August money markets were pricing in 65bps worth of rate cuts by June 2024, but now markets are only pricing in 15bps worth of cuts.
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