April 03, 2023

Daily Report 03/04/2023

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The latest round of UK data releases provided an element of Sterling support with relief that the UK had avoided a technical recession for the second half of 2022. The current account deficit also narrowed slightly, although the overall impact was limited. Sterling continued to gain net support from gains in equities and solid global risk conditions. There was, however, also pressure for a correction after failing to break resistance levels. Overall, Sterling retreated steadily to lows against the US currency as tight ranges prevailed. Risk conditions were less confident on Monday as markets focussed on the surge in oil prices and Sterling retreated further against the dollar.

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German unemployment increased 16,000 for March compared with expectations of a 2,000 increase with the unemployment rate edging higher to 5.6% from 5.5%. The Euro was unable to make headway after the European open and tended to drift lower. The headline Euro-Zone consumer inflation declined sharply to 6.9% for March from 8.5% the previous year and below consensus forecasts of 7.1%. The headline rate was cut by a decline in energy prices and there was also a very favourable base effect as energy prices surged last year. The underlying inflation rate edged higher to 5.7% from 5.6% and in line with market expectations. There were expectations that the ECB would adopt a hawkish policy stance given concerns over core inflation pressures.

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The dollar posted sharp gains after Monday’s Asian open with the main focus on a surge in oil prices after OPEC announced an unexpected cut in oil output. The jump in oil prices increased fears over a fresh increase in inflation pressures which could force the Fed to be more aggressive in raising interest rates. The Chicago March PMI index edged higher to 43.8 from 43.6 and fractionally above expectations, but this was still the seventh successive reading below 50.0. New York Fed President Williams reiterated that data will drive monetary policy, although he added that bank stresses will lower consumer spending.

Key Data 

15.00 ISM Manufacturing PMI (Mar) Exp. 47.5 Prev. 47.7