September 13, 2022

Daily Report 12/09/2022

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The Bank of England announced that, in light of the national mourning period, the monetary policy decision would be delayed by a week to September 22nd. CFTC data recorded an increase in short Sterling positions to a 5-week high above 50,000 in the latest week from just below 30,000 the previous week as funds sold the currency amid pessimism over the outlook. The shift will lessen the potential for further selling in the near term. Sterling posted gains at Monday’s open with an attempted recovery from over-sold conditions. Latest data recorded a UK GDP increase of 0.2% for July, slightly below consensus forecasts of 0.3% as industrial production declined.

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The ECB council member Knot stated that curbing the dynamic in inflation is the only concern. He added that inflation uncertainty is too high in order to give forward guidance. Fellow member Villeroy stated that the bank’s hands are completely free on the next policy move while the capacity to deliver on the mandate cannot be subject to any doubt. Council member Muller noted that rapid inflation required a robust response. There were, however, source reports which indicated that a 50 basis-point rate hike was more likely than 75 basis points at the October policy meeting which limited Euro support to some extent. ECB sources also suggested that the central bank are likely to debate the starting of quantitative tightening and bond sales at next month’s meeting. There was further hawkish ECB rhetoric over the weekend with comments that policy would need to go into restrictive territory and the Euro secured a net gain on Monday.

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Kansas City Fed President George stated that she prefers steadiness and purposefulness of rate hikes over speed which suggested she would back a 50 basis-point rate hike. Fed Governor Waller stated that he supports another significant rate increase this month as inflation is far too high and it is too soon to say whether inflation is moving meaningfully and persistently downward with rate increases needed until at least early next year. The hawkish rhetoric suggested that he would back a 75 basis-point rate hike this month. There should be no further comments from Federal Reserve officials ahead of the scheduled policy meeting on September 21st. Markets will, however, be wary of unofficial press briefings ahead of the meeting which could lead to choppy trading.

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