July 11, 2023

Daily Report 11/07/2023

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Sterling was unable to make headway after Monday’s European open and posted significant losses during the session. There was a reluctance to extend long positions ahead of the UK labour-market data and Sterling dipped back lower against the dollar which triggered further selling. Bailey commented that inflation and wage increases at current rates are not consistent with the inflation target. He did, however, add that underlying inflation pressures are set to recede and that some of the previous tightening has yet to hit the UK. In this context, the bank is paying particular attention to wages growth and services-sector inflation. The UK unemployment rate increased to 4.0% from 3.8% according to the latest data with a small employment decline for June, but the headline annual increase in wages strengthened to 6.9% from 6.7% with an underlying increase of 7.3%. The wages data maintained expectations of a hawkish Bank of England policy stance.

Key Data 

7.00 ILO Unemployment Rate Act. 4% Exp. 3.8% Prev. 3.8%

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The Euro-Zone Sentix investor confidence index retreated to –22.5 for July from –17.0 previously which was significantly below expectations of –17.9 and the weakest reading since November 2022. Sentix commented that there were particular concerns surrounding the German outlook. The data will maintain underlying reservations surrounding the Euro-Zone economy. The Euro was still able to make some headway after the European open, but unable to move above Monday’s high and drifted lower into the US open as relatively narrow ranges prevailed.

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The dollar was unable to sustain gains ahead of Monday’s New York open and gradually lost ground. The New York Fed one-year inflation expectations index retreated to 3.8% for May from 4.1% previously and the lowest reading since April 2021 while 3-year expectations held at 3.0%. Fed Vice-Chair Barr stated that inflation is far too high while the bank is close, but still has a bit of work to do. Cleveland Fed President Mester stated that the economy has proved stronger than expected and that inflation is stubbornly high. She added that the Fed will need to tighten policy somewhat further to lower inflation and that raising rates again will reduce the risk of more action in the future. She did, however, add that there is no decision yet on the need for a July rate hike.

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