February 03, 2023

Daily Report 03/02/2023

Share this:


great british pound icon

The Bank of England increased interest rates by 50 basis points to 4.00% at the latest policy meeting, in line with market expectations. There was a 7-2 vote for the decision with Tenreyro and Dhingra again calling for no increase in rates. The bank is confident that headline inflation will decline sharply, but it expressed reservations over underlying inflation. The bank expects a shorter and shallower recession, but GDP is still forecast to contract in 2023 and 2024 with GDP not regaining the pre-pandemic peak until 2026. Based on market rates, inflation is forecast to dip to below 1.00% on a 2-year horizon. The bank dropped guidance that it would tighten forcefully if necessary, but still warned that it would tighten further if necessary.

Bank Governor Bailey stated that there was the first sign of turning a corner on inflation, but warned against declaring victory. Markets overall were confident that rates were close to or possibly at a peak and UK yields dipped sharply after the decision. There were important concerns surrounding the longer-term UK outlook.

No Key Data 

Euro logo

The Euro held itself against the dollar ahead of the latest ECB policy decision with the dollar still on the defensive. The ECB increased interest rates by 50 points to 3.00% which was in line with consensus forecasts and the decision was reported as being by a strong consensus.

Bank President Lagarde stated that, although there is no symmetry surrounding risk, it is more balanced than in December with a slight easing of inflation fears. Overall growth conditions are expected to remain weak in the short term. She also still expressed concerns over underlying inflation trends and warned that there is more ground to cover on interest rates. Pointedly, Lagarde also noted that she would not say disinflationary forces are already at play, in contrast to the remarks from Fed Chair Powell. Lagarde also stated that the bank’s intention is to raise interest rates by a further 50 basis points at the March meeting.

Although the rhetoric from Lagarde was broadly hawkish with expectations of at least two further rate hikes, there was some moderation in commentary surrounding inflation. German bond yields also declined sharply, although this was also an important function of global trends.

No Key Data

dollars icon

The US Dollar (USD) benefitted from persistent dip-buying on Thursday. USD managed to recover from some of its post-Fed losses over the course of the day. A cautious market mood lent further support to the safe-haven ‘Greenback’.

The Federal Reserve opted to hike interest rates by 25bps at their decision on Wednesday. The cautious decision prompted markets to pare back their bets on further aggressive tightening from the Fed. This in turn saw USD plummet and continued to cap the currency’s gains on Thursday.

USD found support from an unexpected fall in jobless claims, however. Claim levels for the week ending Jan 28 fell to a nine-month low of 183000. The data pointed to a persistently tight labour market despite the Fed’s intervention and boosted bets on further rate hikes.

No Key Data