September 22, 2022

Daily Report 22/09/2022

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Sterling remained under pressure in early Europe on Wednesday with the wider than expected budget deficit and record debt interest payments reinforcing unease over the outlook. A further dip in risk appetite on Russian/Ukraine developments also sapped confidence in European currencies. Sterling dipped to fresh 37-year lows before attempting to stabilise. The CBI industrial orders index recovered to -2 for September from -7 previously and stronger than consensus forecasts of -13. Manufacturers, however, expect a significant decline in output over the next quarter with inventories increasing significantly.

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12:00 BoE Interest Rate Decision           Forecast 2.25%     Previous 1.75%

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The Euro remained under pressure in early Europe on Wednesday with further concerns over the situation in Ukraine following the announcement by Russian President Putin that there would be partial military mobilisation in Russia. Putin’s warnings over the West over nuclear weapons also unsettled risk sentiment. The Euro dipped to fresh 19-year lows with dollar sentiment remaining strong.

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The Federal Reserve increased interest rates by 75 basis points to 3.25% which was in line with consensus forecasts and with a unanimous vote. The statement noted that inflation remained elevated and that the central bank was highly attentive to inflation risks with interest rates set to increase further. The new set of economic projections downgraded the growth outlook with inflation forecasts slightly higher. The end-2022 projection for the Fed Funds rate was increased to 4.4% from 3.4% in June with the end-2023, forecast raised to 4.6% from 3.8%, but rates are expected to decline over the following two years. Chair Powell reiterated the need to combat inflation and that the Fed will be moving policy to a level that is sufficiently restrictive. He added that inflation risks are still skewed to the upside and the bank will want compelling evidence that inflation is declining with the probability that a restrictive policy will be needed for some time.

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