September 13, 2022

Daily Report 13/09/2022

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There was a muted reaction to the UK data releases with the slightly weaker than expected GDP data offset by hopes that the move to cap energy prices would alleviate the threat of a deep recession. There were still expectations that GDP would contract for the next few quarters, especially as the extra bank holiday will hurt the third quarter. The latest UK trade deficit was slightly narrower than expected at £19.4bn, although there were still important reservations surrounding the underlying deficit. Sterling drew some support from reports that EU Commissioner Sefkovic was willing to sanction a substantial reduction in the number of checks of lorries travelling into Northern Ireland. Political rhetoric will be watched closely from late September as political debate resumes. Overall Sterling sentiment remained firmer during the day with an element of short covering amid consideration that recent losses had been over-done. UK unemployment declined to 3.6% in the three months to July from 3.8% previously, but there was a smaller than expected increase in employment. Underlying average earnings increased 5.2% in the year from 4.7% which will maintain expectations of further Bank of England rate increases to curb domestic inflation.

Key Data 

7.00 Claimant Count Change (Aug) Act. 6.3K Exp. -9.2K Prev. -14.5K
7.00 ILO Unemployment Rate Act. 3.6% Exp. 3.8% Prev. 3.8%

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ECB council member Schnabel stated that she anticipated further rate hikes to help reach its target on schedule. The Euro surged in early Europe on Monday and advanced  against the dollar. Hawkish ECB rhetoric underpinned the single currency and there was also an element of optimism that Ukrainian gains against Russian forces could lead to an earlier than expected end to the conflict. There was still an important element of unease, especially given uncertainty over President Putin’s response to the military setbacks. The Euro was unable to sustain the gains and dipped to lows later in the session as overall confidence in the Euro-Zone outlook remained fragile.

Key Data 

7.00 German Harmonized Index of Consumer Prices (YoY) (Aug) Act. 8.8% Exp. 8.8% Prev. 8.8%

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There were no major US developments during the day, but gains in equity markets curbed potential defensive demand for the US dollar.  The latest US consumer prices data will be important for market sentiment on Tuesday. Consensus forecasts are for a slight fall in headline consumer prices for August with the annual rate declining to 8.1% from 8.5%. Core prices are forecast to increase 0.3% with the annual rate increasing to 6.1% from 5.9%. Weaker than expected data would increase speculation that the Federal Reserve could adopt a less aggressive policy stance while stronger than expected data would renew fears over the outlook and trigger renewed dollar demand.

Key Data

13.30 Consumer Price Index ex Food & Energy (MoM) (Aug) Exp. 0.3% Prev. 0.3%
13.30 Consumer Price Index ex Food & Energy (YoY) (Aug) Exp. 6.1% Prev. 5.9%